Fed Preview: Forecasts from 13 major banks, the last big hike for now?

The US Federal Reserve will announce its monetary policy decision on Wednesday, November 2 at 18:00 GMT and as we get closer to the release time, here are the expectations as forecast by analysts and researchers of 13 major banks. 

The Fed is set to raise rates by 75 bps for the fourth consecutive time. That would put the Federal Funds rate at a range of 3.75-4%, up from 3-3.25%.

ANZ

“The Fed is on track to hike by 75 bps, taking the top end of the policy target range to 4.0%, up from 0.25% in March. This is the most aggressive tightening cycle in four decades. We maintain our terminal rate call of 5% but have pulled this forward to Q1 2023 from Q2. Our current forecast profile is for a 50 bps rate hike in December followed by 25 bps rises in February and March next year. This profile is data-dependent. The risk to our view is that core services inflation doesn’t begin to moderate in Q4, leaving upside risks to our path.”

Commerzbank

“The Fed is expected to announce another large rate hike of 75 bps. In the following weeks, however, the Fed will probably increasingly prepare market participants for smaller rate steps. After all, the rate peak is gradually coming into view, which the Fed will approach at a slower pace so as not to have too abrupt a transition from the rate hiking phase to the stay-high phase.”

Danske Bank

“We expect Fed to hike by 75 bps. The recent soft macro data and the WSJ article suggesting that moderation in hiking pace could be near have sparked a ‘pivot’ rally in the markets – we think it is still too early. High spot core inflation, only modest tightening in real financial conditions and rising inflation expectations leave Fed little room to manoeuvre.”

TDS

“We expect another 75 bps rate hike, taking the Fed Funds target range to 3.75%-4%. The likely rate decision will bring the Fed Funds rate to a level at which we think the FOMC will be more comfortable in shifting to a steadier hiking pace to further grind down inflation when we move into 2023. The exact timing of this downshift in hiking pace, however, will highly depend on the CPI prints between the November and December FOMC meetings, but some hints of it might appear in the post-meeting statement or press conference. Holding USD longs into this meeting is tactically difficult, but we also think the market has already made positioning adjustments and moved to price in a Fed shift. If Powell does not validate a shift, a sizable pain trade is in the offing.”

ING

“Wednesday’s Federal Reserve FOMC meeting is set to result in the fourth consecutive 75 bps rate hike given that annual rates of core inflation are heading higher rather than lower, the economy has returned to growth with a decent third-quarter GDP report, and the labour market remains robust with job vacancies exceeding the number of unemployed Americans by four million.”

SocGen

“The FOMC is widely expected to deliver another 75 bps rate hike. Our focus on the press conference will be guidance for future increases. Fed officials are not going to commit. They seek to maintain flexibility. After four jumbo-sized hikes, however, Fed officials should want to gauge economic responses.” 

NBF

“The FOMC is set to increase the fed funds target by 0.75% for the fourth consecutive meeting, a move fully discounted by markets. With inflation still hot and the labour market remaining tight, the Fed is likely to flag that further rate increases will be necessary. It should however signal an upcoming slowdown in the pace of rate hikes in the context of slowing global growth. While there will be no new dot plot presented, we’ll be keenly watching Chair Powell’s press conference to see if the FOMC’s expectation to bring their policy rate all the way up to 4.75% (upper bound) by the end of next year has wavered. Our own expectations for the terminal rate are slightly lower at 4.50% as we expect the Fed to be forced to stop its monetary tightening cycle following the December meeting to prevent an economic slowdown turning into something worse. We expect inflation will have slowed down by then, not enough to ease the central bank’s worries, but enough to allow it to adopt an approach balancing price control with support of the economy/labour market.” 

NAB

“We expect Fed Chair Powell to stay on message at his post-FOMC press conference on Wednesday that the Fed will continue to tighten until the job on inflation is done amid a lot of questions around when the Fed might pivot, including under what conditions. We look for another 75 bps rise in the target range to 3.75-4.0%.”

RBC Economics

“The Fed is likely to deliver another 75 bps hike. Our own forecast anticipates the Fed Funds rate entering the 4.5%-4.75% range by early 2023.”

CIBC

“We see the Fed moving by 75 bps, and while that only leaves a further 50 bps to reach our projected ceiling, we wouldn’t expect the central bankers to drop any dovish hints on a day they are moving that aggressively.”

Citibank

“A 75 bps hike this week looks like a done deal but could be followed by a slowdown to 50 bps in December with data dependency as the key phrase. Moreover, Chair Powell will likely emphasize a slowdown does not mean an imminent pause and that rates will continue to tighten until sufficiently restrictive to bring down inflation.”

Rabobank

“Recent data confirmed our view that inflation is persistent. With the Fed clearly prioritizing price stability over full employment, this is going to push the FOMC higher than they currently anticipate. We expect the FOMC to raise the target range for the federal funds rate by 75 bps to 3.75-4.00% at the November meeting. Next year, we expect the top of the target range to peak at 5.00% and we do not expect the Fed to pivot before 2024.”

Wells Fargo

“We expect the Fed to announce a 75 bps increase in the target range for the federal funds rate. We expect Chair Powell to reiterate that quelling inflation remains the FOMC's utmost priority and that the FOMC will ‘keep at it until the job is done.’ However, we also expect to see signs of the FOMC approaching a crossroads in its campaign to battle inflation. Monetary policy famously works with a lag. To that end, increased emphasis on the significant policy tightening done in short order this year could begin to position the FOMC for a slower pace of tightening as soon as its December 14 meeting, even as inflation is still expected to be well-above target. However, a downshift in the pace of tightening from 75 bps per meeting to 50 bps per meeting should not be conflated with a full pivot on policy. Rather, it would be the first step in an effort to tame inflation with a bit more precision. The FOMC will therefore need to carefully message that it remains firmly committed to reducing inflation while highlighting the progress made at getting policy to a position that is better able to achieve that outcome.”