MILANO (Finanza.com)
The spread of the Omicron variant will fuel further bullish pressure on inflation, which could be forcing the Fed of Jerome Powell to raise rates on fed funds more than four times, in the course of 2022. This is what he wrote in a note David Mericle, economist at Goldman Sachs, pending the imminent meeting of the FOMC – the monetary policy arm of the Fed -, which will begin tomorrow 25 January and end the day after tomorrow 26 January.
“Our base scenario is four (monetary) squeezes in the months of March, June, September and December – wrote Mericle, in the note reported by the CNBC website – But we see the risk that the Fomc decides to act in a restrictive sense in each of the scheduled meetings (scheduled, therefore also in May), until the inflation picture changes“.
Markets discount a first squeeze at the March FOMC meeting: in that case, it would be the first rate hike since December 2018. Some estimate that rates could be raised by as much as 50 basis points in March.
Traders are pricing in rate hikes in March with a probability of almost 95%, and in general four monetary squeezes in all of 2022 with a chance of more than 85%, according to data from the CME.
Expectations, thanks to the growth of inflation at the strongest pace of the last 40 years, are becoming increasingly bullish, so much so that the probability of seeing five rate hikes, again according to the FedWatch parameter of the CME, it has risen to almost 60%.
“We also see a good chance that the FOMC will decide to intervene in a restrictive sense in the May meeting, when inflation should still remain quite high. If so, the rate hikes could be more than four this year,” he pointed out. Goldman Sachs economist.
Most economists at major investment banks continue to take a rate hike for granted at their March meeting.
On the other hand, a stalemate is expected for this week’s meeting, which should confirm the cost of money in the range between zero and 0.25%, in the face of a tapering process that has already begun, and also speeded up, so much so that there has been talk of turbo tapering.
Of course, a lot of things have changed since the last meeting in December, as the US Treasury rates have shown incontrovertibly, which, after closing December 31st at 1.51%, shot up last week. over the 1.90% threshold, after a bang of strongest start to the year in twenty years, caused by the fear ofinflation, ergo the cruelest tax, that the data confirmed to the record since 1982.
Jamie Dimon’s comment on Goldman Sachs’ initial outlook
The same minute of the Fomc they had presented a much more hawkish face than the Fed, and they had been the same economists as Goldman Sachs to say at the beginning of the year to forecast four rate hikes this year, compared to the three that emerged from the December FOMC dot-plot.
The forecast had been received with distrust by the same Jamie Dimon, CEO of JP Morgan who said he’d be surprised if the monetary tightening wasn’t, in the end, more than four.
“It is possible that inflation turns out to be worse than they expect and that (the Fed) will therefore raise rates more than expected. Personally, I would be surprised if there were only four rate hikes,” Dimon said.
Ora Goldman Sachs actually corrects the shot, not excluding, in fact, the probability of more than four rate hikes.
Other economists have spoken out on what the Fed will do, pending the upcoming meeting.
Bank of America said he believed in a rate hike in March:
“We expect the first rate hike to occur in March, with a 25 basis point hike in each of the next eight quarters. the Quantitative Tightening it will be announced at the FOMC meeting in June, with the risk of an advance in May “.
The analysts of Societe Generale sono meno hawkish and instead believe that the Fed will deny the market’s bets on more than four tight spots in 2022, as it prepares to embark on a rapid budget reduction starting in the second half. “
According to SocGen, “although the commission is ready to fight inflation, monetary policy will remain accommodative, in the face of a gradual recovery “of the economy.
About the Fed balance sheet reduction (aka Quantitative Tigthening) Goldman Sachs expects the process to begin in July, with a central bank bond cut that will increase by $ 100 billion each month, to end over a two to two and a half year span.
The disposals should bring the Fed’s balance sheet to a very high value, between $ 6.1 and $ 6.6 trillion.
Probably, second Goldman Sachs economist, the Fed will continue to invest part of the revenues obtained with the maturity of the bonds each month, rather than proceeding with a direct disposal of the assets.
