Danske Research discusses its expectations for the Fed policy trajectory.
"It is widely expected that the Fed will hike by 50bp, which is fully priced in markets. St. Louis Fed President James Bullard said he would like to hike by 75bp but it does not seem like a consideration supported by the rest. It is one of the interim meetings without updated projections (no new dots). We expect, however, that the statement and the press conference will reflect what we have heard from the Fed since the last meeting: that the Fed desires to get the policy rate quickly back to neutral. We expect the Fed will announce that the balance sheet runoff will begin in mid-May. We expect the cap to be set at USD95bn per month as outlined in the minutes from the March meeting (USD60bn for US Treasuries, USD35bn for mortgage-backed securities)," Danske notes.
"We continue to expect the Fed will hike by 50bp three meetings in a row (May, June and July) and 25bp on each of the last three meetings (September, November and December). We expect the Fed to hike twice in early 2023. ..So overall, we are still of the view that risks are skewed towards faster and more rate hikes and cannot rule out that the Federal Reserve needs to follow the “emerging market central bank playbook” by out-hiking expectations," Danske adds.