Morgan Stanley Now Expects 4 Rate Hikes Says S&P 500 Could Correct Up To 20%
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Ellen Zentner, Chief US economist at Morgan Stanley, now expects the Fed to deliver 4 rate hikes this year (March, June, September, and December). Two additional hikes are seen in 2023.
Zentner also expects the Balance sheet runoff (QT) to be announced in July “with a two-month phase-in to max caps of $50 billion in Treasuries/$30 billion in MBS by September.”
“On this expectation, our strategists project the 10-year Treasury yield rising to 2.20% in 2Q22,and 2.30% in 4Q22. At the same time, our FX strategists see the dollar strengthening into the middle of the year before pulling back into the end of the year,” the economist wrote in a note.
In this case, the S&P 500 could sell off 10-20% in the first half of this year, while Morgan Stanley has a base case year-end target at 4400.
Inflation and labor markets are seen as the greatest risks to watch that shape Fed’s policy and actions.
“Should inflation persist at higher levels than the FOMC anticipates, policymakers have made clear they are prepared to pursue a faster pace of policy tightening. At the same time, a faster deceleration in inflation or a sharper-than-anticipated and unwelcome tightening in financial conditions could act to flatten out the expected policy path. Conversely, if markets largely shrug off QT, the FOMC would likely move to raise rates more than we forecast. Chair Powell has made clear that if it needs to continue to raise rates, it will,” Zentner added.
By Senad Karaahmetovic | email@example.com
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