Many are still trying to size up the Fed's monetary policy for 2022 as the market heads into February. What we know so far is the central bank will begin hiking rates in March, assuming that the "conditions are appropriate for doing so," but it's anyone's guess how aggressive the FOMC will be after that as it tries to snuff out the strongest pace of inflation in decades. There is also debate over when the Fed will start reducing its balance sheet (May, June or July), though it made clear at its last meeting that pandemic-era bond-buying will come to an end next month.
How many hikes in 2022? Estimates on Wall Street now range from three rate increases all the way to seven, with the federal funds rate projected to end the year in a range of 1.25%-2.00% (the current effective floor is 0.00%–0.25%). Check out some of the forecasts below:
Barclays (3): "With reserves balances over $4T and nearly $1.5T in the [Fed's reverse repo facility,] we expect it will be difficult for short-term interest rates to trade much above the interest rate floor."
Morgan Stanley (4): "If they need to hike fast, they will. The Fed is showing urgency and being flexible."
Goldman Sachs (5): "We see a risk that the FOMC will want to take some tightening action at every meeting until the inflation picture changes."
BNP Paribas (6): "We read Fed Chair Powell's comment that this cycle is different from the previous one as an indication that the Fed's bias is for a steeper tightening than the markets and we had envisaged."
Bank of America (7): "The Fed has all but admitted that it is seriously behind the curve. With that said, the markets are doing the Fed's job of tightening financial conditions without an actual hike."
Yesterday, Esther George, president of the Kansas City Fed and voter on the FOMC, emphasized that "more aggressive action on the balance sheet could allow for a shallower path for the policy rate."