The US Federal Reserve will announce its monetary policy decision on Wednesday, March 22 at 18:00 GMT and as we get closer to the release time, here are the expectations as forecast by analysts and researchers of 15 major banks. 

Markets expect the Fed to raise its policy rate by 25 basis points to the range of 4.75-5% but there are too many uncertainties surrounding Fed's policy outlook after the Silicon Valley Bank (SVB) crisis.

ANZ

“Inflation remains a major problem for the Fed. We favour a 25 bps increase. The FOMC will debate the suitable course of action given recent developments. A pick-up in volatility, and thus tighter financial conditions, going into the meeting could force a pause. We think the Fed will stress that future rate decisions will depend on both the data and the functioning of the financial system. We expect Powell to stress that the Fed will do whatever is required to preserve financial stability to raise 75 bps on way to 5.0%, pivot data dependent.”

Commerzbank

“We now assume that the Fed will raise key rates by 25 bps. Otherwise, the markets would probably already safely assume that the interest rate cycle is at an end and that it is only a matter of time before the Fed cuts again. Then the Fed would first have to convince market participants again that it will continue to raise rates after a pause in order to fight inflation. This poses the risk of additional volatility in the markets. As for the outlook going forward, the current turmoil shows that the tighter monetary policy is having an impact and is leading to negative consequences in parts of the economy. Accordingly, the Fed is likely to proceed more cautiously and raise interest rates in 25 bp steps to 5.50% (previously, we expected 6.00%). Moreover, we see our forecast confirmed that the US economy will slide into recession in the second half of the year, to which the Fed is likely to respond with the first interest rate cuts in early 2024.”

Swedbank

“We stick to our call that the Fed will hike by 25 bps both this week and at its May meeting. The Fed will however face a difficult balancing act between on the one hand being ready to support the financial sector, while also signal further tightening is on the cards to tame inflation.”

ING

“With the ECB hiking rates by 50 bps without causing too many market ructions, this is likely to embolden the Fed to move by 25 bps.”

Erste Group Research

“We expect the following: In addition to a 25 bps hike in policy rates, the new survey of FOMC members should see rates peaking at about the same level as in December. This corresponds to rate hikes of another 50 bps from current levels. If the rate peak is seen higher, we expect to see accompanying softening statements that emphasize the high level of uncertainty and highlight the possibility of pauses in the ongoing process of monetary tightening. Anything that indicates a more cautious approach by the FOMC should be received positively by the markets.”

Danske Bank

“We like our call of a 25 bps rate hike this week and a terminal rate at 5.00-5.25% in May. Hence, we see modest upside risks to short-term rates from current levels.”

TDS

“We expect a 25 bps rate hike taking the Fed funds target range to 4.75%-5.00%. We anticipate that post-meeting communication will: (i) stress that the Fed is not done yet in terms of further tightening of its policy stance, (ii) acknowledge the more uncertain economic environment, with a large emphasis on data dependence, and (iii) underscore a willingness to guarantee sufficiently liquid market conditions.”

BMO

“We are holding to our call that the Fed will lift rates 25 bps to 4.75%-to-5.00%, assuming no major new news breaks before the meeting. We are also maintaining the view that they will deliver one final hike in May, and then hold at that 5.00%-to-5.25% range through the second half of the year.”

CIBC

“Our base case is that the Fed opts for a quarter point hike, dialing down what would have been a 50 bps move in the absence of the past week’s banking events, but likely showing a follow up quarter point move in the ‘dots’.”

Standard Chartered

“On balance, a 25 bps policy rate hike is more likely than flat; a 50 bps roll of the dice is unlikely. We expect the Fed to hold to QT for now but possibly open a door to slowing or a pause.”

SocGen

“We expect a 25 bps hike, although that expectation is conditioned on a gradual restoring of calm since the seizure of the three banks. The economic evidence validates a hike. Fear among depositors might demand a pragmatic response, which might be to pause. Powell warned in 2022 that the inflation fight could be painful. The Fed’s resolve is now being tested. It’s time to follow-up on those words with action.” 

NBF

“We’ll be looking for a 25 bps rate increase. More important than the decision itself will be updated FOMC guidance. Until last week, it was clear that March’s new ‘dot plot’ would signal higher policy rates for the coming years. That has now been thrown into question in light of recent financial events. Markets are expecting rate cuts in the second half of the year, though we don’t think policymakers will be willing to signal this yet.”

CitiBank

“We expect a 25 bps rate hike to take the Fed Funds rate to 4.75-5.0%. Chair Powell is likely to emphasize inflation can be addressed through policy rates, while financial stability can be addressed through other tools. No hike might be interpreted as the Fed being aware of more problems in the banking sector than the public. We also expect median dot for year-end 2023 to rise 25 bps from 5.00-5.25 to 5.25-5.5% and 2024 dot to rise 25 bps. Fed will also update its quarterly economic forecasts.”

Wells Fargo

“We forecast that the FOMC will raise its target range for the federal funds rate to 5.00%-5.25% by June from its current setting of 4.50%-4.75%. But as the pace of economic contraction that we forecast gathers pace in the fourth quarter of this year and as inflation recedes, then we look for the FOMC to begin an easing cycle that lasts until the third quarter of next year.”

BofA

“We expect the Fed to hike by 25 bps, but the decision and outlook for any tightening depend on financial stability. We retain our outlook for monetary policy, including a terminal target range of 5.25-5.5%, and a mild recession in the US beginning in Q3 of 2023. We now see a greater risk of Fed tightening and balance sheet reduction ending sooner; we saw risks that both would last longer previously. For USD, we expect some Dollar appreciation on the back of a 25 bps hike, but acknowledge that the range of USD outcomes is wide; it largely depends on the financial sector headlines.”

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