Analysts at ANZ in Australia have revised their fed funds forecast higher.
- We have revised up our fed funds rate forecast range by 50bp to 5.25-5.50%.
- We now expect the FOMC will extend tightening through Q2 and anticipate 25bp rate increases at the May and June FOMC meetings, in addition to the March hike that we already expected.
- Economic momentum at the end of last year and in early 2023 has been stronger than anticipated. We have revised up our Q1 GDP forecast to 0.5% q/q vs 0.3% q/q, inferring resilient growth.
- Based on available and expected data, we have downgraded our near-term view of recession risks. Whilst the increase in January Nonfarm Payrolls (517k) was way above "normal" and may not be repeated in coming months, there is no denying labour market strength. This implies cyclical components of inflation may stay high.
- We think the FOMC will have to upgrade its GDP forecasts and reduce its unemployment forecasts when it publishes its Summary of Economic Projections in March. The risks to the median dot plot lie to the topside.
