abrdn: Fed vecht tegen 'perfect storm'

January 25, 2022

Dit is een vooruitblik van James McCann, Econoom bij abrdn, op de bijeenkomst van de Fed deze week.

The Fed continues to receive nasty surprises on the inflation front as it battles a perfect storm of rising energy prices, rampant inflation in durable goods and surging rents. It will still expect some of these pressures, particularly around energy prices and goods, to moderate as we move through 2022, but Omicron could disrupt this progress. And accelerating wage growth increases the risk that we see more persistent inflation across domestic services, if firms try and protect margins in the face of continued increase in input costs. 

Against this backdrop, this meeting is likely to bring a few surprises in terms of direct policy moves, but will confirm the Fed’s recent hawkish pivot and heavily signal the start of rate hikes in March. We think the risk of a short term hawkish surprise – such as ending QE earlier than March – is relatively low, but further out the forecast horizon the risks are skewed towards the Fed delivering more than the 100bps in rate hikes we expect this year. A faster withdrawal of monetary policy support will coincide with a more abrupt tightening in fiscal policy as pandemic support measures fully roll off and our expectations for Build Back Better legislation shrink. Both of these point to weaker growth ahead.