Fed pivot will take rates to more than 1.5% in 2023

In sharp contrast to the surprisingly dovish November meeting, we expect Fed officials will use their December meeting to lay the ground for markedly tighter policy in the years ahead. The characterisation of inflation as “transitory” will be retired from the policy statement and the pace of tapering will be stepped up, with asset purchases now set to end next spring, rather than summer. In response to the Fed’s hawkish shift, we are revising our interest rate forecasts markedly higher. Rather than waiting until 2023, we now expect the Fed to hike rates twice in 2022, followed by four hikes in 2023, in a tightening cycle that will take rates to more than 2% by mid-2024.