Recent testimony, speeches and interviews have made it clear that the Federal Reserve “is gung ho and ready to start hiking in March”, explained analysts at Rabobank. They see the FOMC raising rates each quarter during 2022 unless there is a setback in the real economy.

Key Quotes: 

“The next meeting of the FOMC takes place on January 25-26. There will be no update of economic projections, only a formal statement and a press conference by Powell. Since tapering continues until March, there will also be no rate hike in January. Powell will likely repeat his hawkish remarks of recent weeks and try to convince the markets, the public, and the politicians, that the Fed is now serious about inflation fighting.”

“At the post-meeting press conference on January 26, Powell may shed some light on the balance sheet normalization discussion. The minutes – to be released on February 16 – may give us more details on this debate.”

“Last summer, we expressed our fear that the Fed would be blindsided by inflation. However, we had no idea how long it would take for the FOMC to see the light. Keep in mind that at the time we wrote our special the FOMC still expected to keep rates unchanged until 2024! Then, at the December meeting, the Fed created the option to start hiking in March, by accelerating the pace of tapering. What we have heard in recent weeks from Powell and his fellow FOMC participants has convinced us that they have become serious about inflation fighting. In fact, they seem eager to show it through action. Therefore, we have put 4 Fed rate hikes of 25 bps each in our outlook for 2022.”
 

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