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Nomura Holdings Inc. now expects the Federal Reserve to lift interest rates by 75 basis points at both its June and July meetings, moves that would follow up on an expected 50 basis point hike in May.
“Our U.S. team has changed their Fed call,” Rob Subbaraman, head of global markets research at Nomura, wrote in an email. “They now expect the FOMC to be even more front-loaded with rate hikes, in order to get the funds rate back to neutral as expeditiously as possible to avoid a wage-price spiral.”
The Nomura call comes as Fed officials increasingly ramp up their hawkish views in order to contain soaring inflation.
Fed Chair Jerome Powell on Thursday outlined his most aggressive approach to taming inflation to date, potentially endorsing two or more half percentage-point interest-rate increases while describing the labor market as overheated.
That followed earlier remarks by St. Louis Fed Bank President James Bullard who this week opened a debate about doing a more aggressive 75 basis-point increase if needed, although Chicago's Charles Evans said he doesn't “see the need for anything more” than a 50 basis-point move and Atlanta's Raphael Bostic warned against acting with so much vigor that the central bank harms the economy.
Nomura expects the Fed to push their funds rate beyond neutral and into restrictive territory with six 25 basis point hikes at each consecutive meeting until May 2023, giving a terminal funds rate of 3.75-4.00%.
“We recognize Fedspeak has not outright endorsed a 75 basis point hike yet, but in this high inflation regime we believe the nature of Fed forward guidance has changed – it has become more data dependent and nimble,” Subbaraman said in his email.
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