Hike rates

Fed to hike rates 75 basis points in June and July, Nomura says

  • Nomura now expects the Fed to raise interest rates by 75 basis points in June and July, following a 50 basis point hike in May.
  • It would be one of the fastest tightening cycles in history, as the Fed grapples with searing inflation.
  • Fed officials, including Chairman Jerome Powell, have strongly suggested they want to accelerate interest rate hikes.


Federal Reserve

will raise interest rates by 75 basis points in June and July, investment bank Nomura predicted, in what would amount to one of the fastest monetary policy tightening cycles ever.

U.S. economists at the Japanese bank, including Aichi Amemiya, said in a note late Thursday that the Fed would raise rates by 50 basis points in May, then follow up with two bigger hikes at its June and July meetings.

The US central bank rising interest rates 25 basis points, or 0.25 percentage point, in March. This brought the target federal funds rate to between 0.25% and 0.5%.

Since then, Fed officials have strongly suggested they are likely to start raising rates more quickly as they try to rein in the strongest inflation in 40 years.

Amemiya and his colleagues pointed to the fact that St. Louis Fed President James Bullard said he couldn’t rule out a 75 basis point hike. In an interview earlier this week, Bullard said there was precedent for such a move, which last happened in 1994.

“We believe the comments from FOMC participants this week were an intentional effort to ‘test’ a 75 basis point upside and then closely monitor the market’s response,” Nomura said. The FOMC is the Federal Open Market Committee, the group within the Fed responsible for setting rates.

The central bank typically raises interest rates only 25 basis points at a time. It hasn’t made consecutive rate increases in back-to-back meetings since 2006, and it hasn’t raised rates by 50 basis points since 2000. Its next two-day meeting begins May 3.

Nomura said he believes the Fed will push interest rates well above the so-called neutral rate – estimated by many economists at around 2.5% – which is the level supposed to neither stimulate nor slow the economy.

He expects the Fed to push the target rate to a high between 3.75% and 4% by May 2023. However, Nomura also expects the central bank to have to cut rates early of 2024 as the economy slows.

Fed Chairman Jerome Powell said wednesday that he would like to raise rates faster to fight inflation. US consumer price index inflation in March climbed to 8.5% year-on-year, the highest rate since 1981.

“Fifty basis points will be on the table for the May meeting,” Powell said at a meeting hosted by the International Monetary Fund on Thursday.

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