Global interest rates set to rise in 2022, says BofA
Bank of America predicts that the US Federal Reserve will raise the bank rate next year to curb inflation, measures that will affect equity market gains.
The Federal Reserve will zero out its purchases of treasury bills and mortgage securities that started amid the pandemic to support the economy by May and start raising rates from June, according to banking analysts.
Starting in the second quarter, Bank of America expects the Fed to hike the fed funds rate to a range of 0.25% to 0.50%, from its current near zero range of 0.00% to 0, 25%, according to a report provided to Capital. com. The Fed is then expected to hike rates two more times to close 2022 in a range of 0.75% to 1.00%.
This rising rate environment is likely to stifle equity gains, but GDP growth, strong earnings and rising corporate dividends should weather headwinds, BofA analysts said in a second. report.
The hike in federal funds rates will push 10-year Treasuries above 2% by the end of 2022, up from 1.43% at Wednesday’s close, analysts at BofA said. Slowing but still high inflation should also push Treasury rates up.
“Our economists are more optimistic than the consensus on growth, jobs and inflation,” the analysts wrote. “Growth and inflation will moderate over the year but will remain solidly above trend. US activity will be supported by favorable winds in fiscal and monetary policy and an easing of concerns related to Covid. “
BofA forecasts GDP growth of 4% through the first half of 2022 before slowing to 3% in the third quarter and 2% in the fourth quarter.
Likewise, the unemployment rate is expected to decline to 3.6% by the end of 2022, from around 4.6% in October.
The core personal consumption expenditure index (PCE) – which is a key measure of inflation – is expected to remain high at around 4.3% in the first quarter of 2022, but decline rapidly to around 2.4% by then the end of the year, according to BofA. The last impression for October 2021 was 4.1%.
Australia is expected to be the next most aggressive country to raise interest rates just behind the United States, BofA noted in the report.
Analysts are asking the Reserve Bank of Australia to raise the cash rate to 0.5% by the end of 2022 as the country moves faster towards meeting inflation, unemployment and wage targets.
Analysts are still predicting that the UK central bank will hike rates next year despite refusing to do so in November, as many expected.
The Bank of England’s SONIA benchmark interest rate index is currently forecasting five rate hikes amid expectations of persistent inflation, but BofA analysts see inflation improving throughout the period. year and only expect two rate hikes.
Read more: US Fed chairman grilled on inflation outlook
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