A no-pause path into March is more hawkish than markets have priced beyond December. If other banks follow, it would likely be repriced through the front end of the Treasury curve and the dollar. That keeps USD/JPY pressed toward the 160 area where Tokyo is already warning , and it adds to the headwinds for gold. For equities, a faster sequence of hikes lands at an awkward moment, with AI stocks already under pressure from the Nvidia leadership shock . Oil remains the wildcard: renewed energy-driven inflation would strengthen the case for back-to-back hikes, while a sustained easing in crude would weaken it.
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Deutsche Bank has turned UBS’s “faster tightening” risk into its base case, and the Fed debate is now about the pace after December, not whether December happens.
Summary:
Deutsche Bank now expects 25bp Fed hikes in December, January and March, adding a January move to its previous December and March path
That would lift the federal funds target range to 4.50% to 4.75%, from 3.75% to 4% now
The revision followed October CPI, which rose 0.4% m/m against a 0.3% forecast, and which the bank said showed broad-based gains
Deutsche Bank won’t rule out a 50bp December hike after Waller’s comments, but it isn’t the bank’s base case
UBS keeps a base case of hikes in December and March only
Markets price a December quarter-point hike at more than 95%, according to CME FedWatch
Deutsche Bank now expects the Federal Reserve to raise interest rates at each of its next three meetings, after adding a January increase to its forecast following a hotter than expected US inflation report. The bank sees quarter-point hikes in December, January and March. That would lift the federal funds target range to 4.50% to 4.75%, from 3.75% to 4% now.
Deutsche Bank had previously expected hikes in December and March, with a pause in January. The October consumer price report changed that view. Headline prices rose 0.4% on the month against forecasts of 0.3%, and the bank said the data continued to show broad-based gains.
The bank also addressed the idea of a larger move. Before the data, Fed Governor Christopher Waller said a 50 basis point hike should be considered in December if price pressures accelerated, and Deutsche Bank said his comments opened that possibility. It would not rule out a half-point increase, but said a 50 basis point move is not its base case.
The revision puts Deutsche Bank at the more hawkish end of the major banks. UBS, for example, said this week it sees limited support on the rate-setting committee for a 50 basis point step. It keeps a base case of quarter-point hikes in December and March only, although it flagged the risk of more or faster tightening. The two views share a common thread: the debate has shifted from whether the Fed hikes in December to how quickly it follows through.
Markets are close to fully pricing a December move. Traders put the odds of a quarter-point hike at the December 8-9 meeting above 95%, according to CME FedWatch.
The path matters well beyond bonds. Three consecutive hikes would keep pressure on Treasury yields, which climbed close to 5% after the CPI release, and would support the dollar. It also raises the bar for assets that have struggled with higher rates, from gold, which has slipped back below $4,000 an ounce, to richly valued technology stocks. The next tests come from November’s labor market data and further Fed commentary before the December meeting.
This article was written by Eamonn Sheridan at investinglive.com.
