Citi forecasts Federal Reserve will raise interest rates by 50 basis points in March

Citi economists now expect the Federal Reserve to make a steeper 50 basis point hike to the funds’ target rate on offer in March.

The bank made the forecast after the January consumer price index rose 7.5% year-on-year, up from a 7% gain in December.

Wall Street economists were expecting a quarter-point rally in March. Indeed, as recently as January 28, Citi called for five rate hikes of 25 basis points by 2022, starting next month.

But the nurtured fund futures market is starting to price in a more likely half-point rate hike at next month’s meeting following the inflation report and hawkish comments from the Reserve Chairman. Federation of St. Louis James Bullard. Bullard told Bloomberg News he would like to see a 100 basis point increase, or a total increase of 1%, by July.

“January core CPI details suggest inflation remains at 6% and broader, rather than slowing as the Fed forecasts,” the Citi economists wrote. “We now expect the Fed to raise rates by 50bp in March, followed by four 25bp hikes in May, June, September and December.”

Citi economists say they expect three more increases in 2023, following 1.5 percentage points, or 150 basis points, of the increase in 2022.

The Fed lowered lending rates to zero in early 2020 to combat the pandemic.

“We expect core inflation to continue to pick up strongly in February,” the Citi economists wrote. They also expect core personal spending inflation above 3.5% in the fourth quarter compared with the fourth quarter. This is much higher than the Fed’s average forecast of 2.7% in its December economic projections.

Early Thursday, Grant Thornton Chief Economist Diane Swonk said: She now expects a 50 basis point increase in March.