Factbox-Wall St banks expect one more Fed rate-hike as recession looms

(Reuters) – Most major U.S. banks expect the Federal Reserve to raise interest rates by another 25 basis points next month, following evidence of sticky inflation and a strong labor market.

The Fed had pressed ahead with a hike in March as well, even though the U.S. banking crisis raised the specter of a recession as lending conditions tightened.

Money markets are currently pricing in a roughly 65% chance of a 25bps hike from the Fed in May. Such a hike will bring the Fed Funds rate increase for this cycle to 5%, taking the rate to the 5% to 5.25% range. Traders expect a pause thereafter and see rate cuts beginning in the second half of the year.

Following are forecasts from some big U.S. banks and their global counterparts:

May Fed Terminal Rate U.S. recession forecast

Bank forecast Expectation

J.P.Morgan 25 bps hike 5% – 5.25% Sees a U.S. recession

occurring in Q4 2023

Morgan 25 bps hike 5% – 5.25% –

Stanley

BofA 25 bps hike 5% – 5.25% Sees meaningful risk of

contraction in Q2

UBS 25 bps hike 5% – 5.25% –

Deutsche 25 bps hike 5.10% Expects moderate recession

Bank starting in Q4 2023

Goldman 25 bps hike 5% – 5.25% Sees 35% probability of U.S.

Sachs entering a recession over the

next year

Barclays 25 bps hike 5% – 5.25% –

Citigroup 25 bps hike 5.5% – 5.75% –

Societe 25 bps hike 5.5% – 5.75% –

Generale

Wells Fargo 25 bps hike – Sees recession as likely in

the back half of the year

Nomura No hike – –

(Compiled by Broker Research team in Bengaluru; Editing by Devika Syamnath)