The Tell: Fed seen as hiking interest rates seven times in 2022, or once at every meeting, BofA says

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Brendan Smialowski/Press PoolInvestors could be in for seven 25-basis-point interest rate hikes this year, or one at each remaining Federal Reserve meeting, considering the central bank “has all but admitted that it is seriously behind the curve,” according to a note by BofA Global Research.In the note released Friday, economist Ethan Harris and others made a call for seven 2022 hikes even though they’ve also cut their forecast for GDP growth this year to 3.6%, from 4% previously, citing supply and demand factors. Financial markets have been preoccupied with the notion of the Fed gearing up for its first rate-hike cycle since 2015-2018 just as the U.S. economy may be slowing down. The Treasury yield curve, for example, has flattened substantially since the start of the year — a warning that there may be limits to how far policy makers can go without triggering fears of an impending recession. “Aggressive Fed tightening should affect the economy with a lag, weighing on 2023 growth,” Harris and the others wrote. They see the fed funds rate target ultimately ending up in a range between 2.75% and 3%, versus its current level of zero to 0.25%. The economists said they are making “wholesale revisions” to their economic and monetary policy outlook for 2022 and 2023, and that “an even faster-than-expected drop in unemployment and longer-than-expected supply disruptions mean more inflation.”Read: U.S. inflation leaps 5.8% in 2021, PCE shows, and hits 40-year highTo be sure, BofA’s seven-rate-hike call for 2022 isn’t universally shared just yet. Fed funds futures are pointing to a more than 50% likelihood that the central bank will hike rates by 25 basis points at least five times this year, but the probability of seven hikes was only 6% as of Friday, according to the CME FedWatch Tool.Harris couldn’t immediately be reached for comment.On Friday, most Treasury yields headed lower as U.S. consumer sentiment slumped to a decade low and inflation concerns mount. The 10-year yield BX:TMUBMUSD10Y fell to around 1.78%, while the curve re-steepened. Sign up for our Market Watch Newsletters here

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