The usual two-day meeting of the U.S. Federal Reserve is scheduled to end on Wednesday. The market is gradually factoring in the possibility of a 25 basis point Fed rate increase. Yet, given the threats to financial stability posed by the ongoing global banking crisis, the Fed is expected to move towards a modest rate hike. Before to this, bets were put on the 50bps rate increase due to the continued strength of the jobs and inflation data.
While there is discussion on whether to use zero or 25 basis points, JPMorgan desk analysts stated in their morning briefing note that they were still waiting for word on whether the Fed, Treasury, and FDIC will expand the scope of their response or introduce new measures.
Here is what the top economists on Wall Street anticipate the Fed will do tomorrow:
Analysts at Deutsche Bank
Analysts at Deutsche Bank: “During the FOMC meeting on Wednesday, we anticipate the Fed will announce a 25 bp rate increase. The result of the meeting, however, will rely on news stories and events that occur over the next few days, which might either strengthen or undermine the relative sense of stability that has arisen, as the last week has made plainly obvious.”
Analysts at Citi
Analysts at Citi “On Wednesday at 2 PM, we predict the FOMC will increase the policy rates by 25 basis points to 4.75–5.00% and the 2023 median dot by 25 basis points to 5.25–5.50%. The phrase “ongoing growth in the target range” will probably remain in the statement. Although still determined to lower inflation, Chair Powell and the statement will signal a determination to employ liquidity instruments for financial stability. If Powell emphasises more on financial or price stability in the press conference may determine whether the market interprets his comments as hawkish or dovish.”
Economists at Bank of America
Economists at Bank of America: “In this meeting, we anticipate a 25 bps rate hike from the Fed, but the choice and prospects for any tightening are dependent on the health of the economy. The Fed’s policy has been dramatically repriced as recent economic momentum and inflation have indeed been overshadowed by financial sector vulnerabilities.”
Analysts at Wells Fargo: “We expect the FOMC to temporarily halt its tightening measures in order to confirm that the issue is under control. Further financial instability, which poses a threat to the banking system and prevents future rate increases, is, in our opinion, the last thing the FOMC wants. We wouldn’t be surprised by either a hike or a stop, though.”
Experts at Jefferies
Experts at Jefferies: “We anticipate the FOMC to increase the Fed Funds range by 25 bps. When placed against the chance that the Fed loses its credibility in combating inflation, which it has fought so hard to rebuild, we do not believe that the volatility in financial markets justifies a halt.”
UBS analysts: “If they think the financial system is solid, we predict the FOMC would prefer to hike rates 25 bps at their meeting next week.” Inflation still remains too high, they say.
Analysts at Morgan Stanley: “We continue to expect the Fed to proceed with a 25bp increase in response to ongoing inflationary pressures and an extremely robust labour market. In this unstable environment, the Fed has no motivation to catch markets off guard; thus, we believe that it will be prepared to change the rates and balance sheet course as needed.”