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Fed Research – Preview: 50bp Rate Hike

Key takeaways

  • We expect the Federal Reserve to hike the target range by 50bp, a view shared by consensus and market pricing. We expect the Fed to signal that more 50bp rate hikes are likely in coming months in order to get quicker back to neutral.
  • We expect the Fed to announce the balance sheet runoff to start in mid-May. We expect the cap to be set at USD95bn as outlined in the minutes.
  • Our current Fed call is that the Fed will hike by 50bp in May, June and July and 25bp in September, November and December (a total of 225bp). We still see risks skewed towards faster rate hikes, as monetary policy remains too accommodative.
  • FX: At present, we forecast EUR/USD in 1.05 in 12M and we see downside risks to this estimate.
  • FI: We forecast that 10Y UST yields will move above 3% over the next three months. We have a 3.10% six months target.

Full report in PDF.

Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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