The Fed is set to implement its first rate rise since 2018 as chairman Jerome Powell tries to temper inflation without battering growth after a confidence-draining month for Western economies.
The Federal Reserve Monetary Committee (FOMC) is expected to raise the federal funds rate by 0.25% today, with analysts divided on whether the move is too hawkish, or if it doesn't go far enough.
Most brokers are predicting the 25 basis point rise this month following statements by two FOMC members to this effect, with the meeting now seen more as a primer for the FOMC’s future strategy on quantitative tightening, and its outlook on inflation, up 7.9% last month.
Deutsche Bank is predicting six rate hikes this year, underlying the potential for one-off hikes bigger than the lightest-touch 0.25% rise, in addition to quantitative tightening designed to drawdown US$800bn of stimulus this year and $US1.1trn in 2023.
The bank predicts the federal funds rate to hit 1% by July, with three 0.25% rises in each of the three FOMC meetings before then.
“On the one hand, the inflation outlook requires a firm monetary response - regardless of whether it is being driven by supply vs. demand dynamics. In addition, geopolitical risks also are very likely to further exacerbate the supply-driven inflation impact,” Deutsche Bank said.
“On the other hand, the conflict in Eastern Europe has shown the potential to weigh on financial conditions and cloud the growth outlook.”
Some analysts think a 0.25% hike tomorrow could pave the way for a 0.5% jump at the next meeting in May, as the Fed maintains its hawkish stance.