Analysts at Australia and New Zealand (ANZ) banking group offer their take on the potential Fed move, in light of surging US inflation.

Key quotes

“Surging US inflation is becoming broad-based, as evidenced by businesses’ increased ability to pass on higher price rises and accelerating wage growth amid an increasingly tight labor market.” 

“Although the Fed’s tolerance for higher inflation has waned and its forward guidance has become more hawkish, it continues to underestimate the breadth and duration of intense inflation.”

“The 2022 inflation forecast made at the December meeting implies an unlikely soft landing. We expect the Fed will need to lift those forecasts along with its rate profile. “ 

“In response to the strong inflationary pulse, we expect the FOMC will start raising the target range for fed funds in March. We anticipate five 25bp rate hikes this year. Quantitative tightening will also play a role in policy tightening later in the year.”