Banks expect Fed to raise benchmark rate by 50 bps in March

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Banks expect Fed to raise benchmark rate by 50 bps in March

 Banks expect Fed to raise benchmark rate by 50 bps in March
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Highlight

  • The world’s top investment banks expect multiple interest rate hikes this year.

  • The Federal Reserve hopes to bring down the inflation to 2% after the hikes.

  • The US inflation has soared to 7% lately, the highest in nearly four decades.

The world's top investment banks expect the Fed's benchmark interest rates to increase by 50 basis points (bps) in March, a day after the bank signaled a rate hike to tame inflation.

On Wednesday, Fed chief Jerome Powell reiterated plans to end the bond purchases in March following the conclusion of the central bank’s two-day monetary policy meeting.

Economists at Japan's investment bank Nomura, cited by Reuters, said they expect the benchmark rate to increase by 50 basis points (bps) in March.

Similarly, France’s BNP Paribas anticipates at least six hikes this year and expects the target range of Fed’s funds at 2.25-2.50% at the end of 2023, which is 25 bps higher than its previous forecast, Reuters reported on Thursday.

Also, Nomura analysts expect at least four more 25 bps hikes in May, June, July, and December.

The central bank hopes to bring down the inflation to 2% after the rate hikes. The US inflation has soared to 7% lately, the highest in nearly four decades.

Powell added that the current unemployment rate at 3.9% is close to the bank's "maximum employment " goal. He said the economy is "different this time", and the measures taken by the bank will be reflected in its policy.

He, however, did not comment on the pace of the rate hike but stressed that it needs to be “humble and nimble” as it continues to probe the incoming data.

Inflation Target

Powell stressed that the primary job now is to bring inflation closer to its 2% target.

Price stability will be critical to “another long expansion” of the US economy’ hence, it will require tightening the interest rate policy, the Fed chief said in a press statement.

The US unemployment rate has dropped to 3.9% from its peak of 14.7% during the height of the COVID-19 pandemic. The current rate is close to the February 2020 level of 3.5%.

There are more jobs opening today than unemployed people, Powell added.

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