After two rate increases in 2022, we expect three Fed rate hikes in 2023 – Morgan Stanley

Morgan Stanley (MS) joins the group of bulls expecting more and faster Fed rate hikes, per the latest note published Thursday night.

The US banker fetched their initial rate hike calls forward while saying, “We now expect the FOMC to begin raising interest rates in September next year, two quarters earlier than previously anticipated.”

Key quotes

Although the contours of our outlook for inflation and labor markets has not changed, aspects of the Fed’s reaction function may have.

In our outlook, we see the FOMC pausing on rate hikes in the third quarter of 2023 in order to initiate a balance sheet rundown.

Strategists lifted higher their 2022 forecast for the US two-year yield from 1.0% to 1.25%, to incorporate earlier rate hikes.

The strategists kept their 10-year yield forecast at 2.10% for the end of 2022. They forecast the yield to reach 1.75% in the first quarter, 1.90% in the second quarter, then 2% in the third quarter.

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