Banks Jostle to Change Federal Reserve’s Rate Call

Having Global Effects

Financial strategists at leading investment banks around the world were, on Thursday, unsettled by the US Federal Reserve’s monetary policy aimed at an interest rate increase in order to arrest the growing inflation and market instabilities.

The American Federal Reserve had on Wednesday, after a two-day meeting to draft a monetary policy statement, announced that it was possibly going to increase interest rates in the country by March, and confirmed plans to stop its bonds buying in the same month. This decision on bonds came as a shock to investors who were already getting set for up to four interest rate increases by the end of the year.

In the Netherlands, some Deutsche Bank strategists currently expect finance policy-makers in the country to increase interest rates at every meeting from March through June, and then to return to a quarterly hawkish position from September, which will make it a total of five rate increases this year.

Some analysts at Japan’s largest investment and brokerage bank, Nomura, have said that they expect the American Federal Reserve to increase its benchmark rate by 50bps in March.

Retail banking company, BNP Paribas, thinks there will be an increase of up to 25bps in the rates this year from four increases, and they expect that the Fed’s Funds target range should be at 2.25% to 2.50% at the end of 2023, that is about 25bps above the initial forecast they had.

A strategist at the French bank said that their fresh basic case for up to 6 increases this year presents a problem to their bullish outlook for American equities.

Executive Assurance

The Federal Reserve’s Chairman, Jerome Powell, did not nullify the possibility of that happening when he was asked about it in a news brief after Wednesday’s meeting. Powell continued to make a difference between the impending increment cycle and the last time the Reserve regularized its policy rates at an approximately quarterly basis.

Analysts at Nomura stated further that they now fully expect up to 50bps rate increase in March, which will be followed by three more consecutive 25bps increases by May, June, and July. They also finally expect a 25bps increase in December.

The Federal Reserve’s funds futures, an index that keeps track of short-term rate expectations, are currently pricing almost five rate hikes of 25bps/hike before the year ends, an increase from four they initially expected preceding the Chairman’s news brief.

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