Fed to deliver a hawkish 25 bps hike in March – BofA

Analysts at Bank of America Global Research (BofA) offer a sneak peek at what they expected from the March Federal Reserve (Fed) policy meeting due this Wednesday.

Key quotes

"We expect the Fed to kick off the rate hiking cycle with 25bp at the March FOMC.”

“In addition, the Fed is likely to release an addendum to their "Principles for Reducing the Size of the Federal Reserve's Balance Sheet", with specifics on caps for the unwinding of their holdings of Treasuries and agency securities (base case: $60bn cap UST, $40bn cap MBS, no cap bills).”

“This would provide a strong signal that the Fed is ready to commence Quantitative Tightening (QT) in May, which is our base case.”

"In the Summary of Economic Projections, we expect a pull forward in the median hiking cycle to reveal 5 hikes this year, 4 next year, and 1 in 2024. Growth and unemployment should be revised lower while headline and core PCE inflation get revised higher.” 

“In the press conference, we expect a hawkish message from Chair Powell, who will likely reiterate that the Fed needs to get serious about price stability, though we think he will flag risks to the outlook from the Russia/Ukraine conflict and higher commodity prices.”

• Gold needs a dovish Fed to regain traction