Investors Expect 7 Fed Rate Hikes This Year

Expectations of rate hikes in the United States have grown again. In the week in which the US Federal Reserve (Fed) has planned your first meeting of the year in which it will update its macroeconomic forecast table, investors have continued to raise the stakes.

They have gone from expecting six rate increases of 25 basis points in 2022 (one for each meeting), to discounting seven increases (they foresee 6.92 increases at this time), which it would mean raising rates by 50 basis points in a meeting (the market considers the most likely date for a rise of this magnitude to be the meeting that will take place on May 4), or make an unexpected rise, in a hypothetical meeting that is not on the calendar, something unusual in the American institution.

Watch out for the dot plot

Apart from the rise in interest rates that the Fed takes for granted this week, and the update of the forecast table, tomorrow it will be important to review how the famous dot plot of the Fed remains, the graph that gathers the opinion of the different members of the institution on the level at which they expect interest rates to remain in the coming months.

The latest update of the dot plot, which was published last December, reflects three rate hikes in the United States this year as the majority opinion of Fed members. However, it is a table that has become obsolete due to the start of the war in Ukraine and the persistence shown by inflation data in the United States.

“We expect a 0.25 percentage point rise in Fed funding rates,” explains Gilles Moëc, chief economist at Axa Investment Managers. The expert emphasizes that it is important on this occasion to pay “close attention to the dot plot (dot plot) to assess what the prospects are”, and also recognizes the importance of being attentive to any clue that Powell may leave about the Fed’s asset balance. One of the pending accounts of the institution is to announce when it will begin to reduce the weight of your balance.