(Reuters) – Most major U.S. banks expect the Federal Reserve to raise interest rates by another 25 basis points next month, following evidence of sticky inflation and a strong labor market.
The Fed had pressed ahead with a hike in March as well, even though the U.S. banking crisis raised the specter of a recession as lending conditions tightened.
Money markets are currently pricing in a roughly 65% chance of a 25bps hike from the Fed in May. Such a hike will bring the Fed Funds rate increase for this cycle to 5%, taking the rate to the 5% to 5.25% range. Traders expect a pause thereafter and see rate cuts beginning in the second half of the year.
Following are forecasts from some big U.S. banks and their global counterparts:
May Fed Terminal Rate U.S. recession forecast
Bank forecast Expectation
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J.P.Morgan 25 bps hike 5% – 5.25% Sees a U.S. recession
occurring in Q4 2023
Morgan 25 bps hike 5% – 5.25% –
Stanley
BofA 25 bps hike 5% – 5.25% Sees meaningful risk of
contraction in Q2
UBS 25 bps hike 5% – 5.25% –
Deutsche 25 bps hike 5.10% Expects moderate recession
Bank starting in Q4 2023
Goldman 25 bps hike 5% – 5.25% Sees 35% probability of U.S.
Sachs entering a recession over the
next year
Barclays 25 bps hike 5% – 5.25% –
Citigroup 25 bps hike 5.5% – 5.75% –
Societe 25 bps hike 5.5% – 5.75% –
Generale
Wells Fargo 25 bps hike – Sees recession as likely in
the back half of the year
Nomura No hike – –
(Compiled by Broker Research team in Bengaluru; Editing by Devika Syamnath)