Fed to hike by 50bp in March and 25bp on each of the following six meetings – Danske Bank

Economists at Danske Bank are once again changing their Federal Reserve forecasts. They expect a total of 200bp rate hikes this year starting with 50bp in March.

US recession fears are on the rise, as the US yield curve flattens

“We change our Fed call and now expect the Fed to deliver 200bp rate hikes this year (versus 125bp previously). We expect the Fed to hike by 50bp in March and 25bp on each of the following six meetings. If so, the Fed funds target range should be 2.00- 2.25% by the end of the year.”  

“We expect the Fed to hike three times in 2023 and go on hold when the Fed funds target range reaches 2.75-3.00%.”

“We will not be surprised if the Fed announces it ends QE immediately although it did not happen over the weekend. We now expect the Fed to start QT in May with a cap between USD100-125bn (from June and USD75-100bn previously).”  

“We still see risks skewed towards the Fed pulling the emergency brake by hiking sooner and more forcefully. This also means a higher risk of a recession down the road and we will not be surprised if the yield curve inverts reflecting higher recession fears.” 

“The Fed needs to slow demand and reduce inflation fears by tightening monetary and financial conditions and that also increases the risk of a hard landing instead of a soft one.”