The U.S. Federal Reserve has increased interest rates by 375 basis points this year since rolling out its first hike in March. This has sparked worries about a recession, even as the central bank is expected to temper its pace of hikes.
Real GDP (annual Y/Y) forecasts for 2023:
Bank Global U.S. China
Morgan Stanley 2.20% 0.50% 5%
Goldman Sachs 1.80% 1% 4.50%
Barclays 1.70% -0.1% 3.80%
J.P.Morgan 1.6% 1% 4%
BNP Paribas 2.3% -0.10% 4.50%
UBS 2.1% 0.1% 4.5%
BofA 2.3% -0.4% 5.5%
Credit Suisse 1.6% 0.8% 4.5%
Deutsche Bank ~2% 0.8% 4.5%
Citi 1.9% 0.7% 5.6%
U.S. inflation forecast for 2023 and Fed terminal rate forecast:
Bank U.S. Inflation Fed Terminal Rate
(annual Y/Y for
2023)
Morgan Stanley Headline CPI: 4.625% (by Jan '23)
3.3%Core PCE: 3.8%
Goldman Sachs Headline CPI: 3.2% 5 - 5.25%
Core CPI: 3.2% (by May '23)
Core PCE: 2.9%
Barclays Headline CPI: 3.70% 5% - 5.25% (by March
'23)
J.P.Morgan Headline CPI: 5% (by Jan '23)
4.1%Core CPI: 4.2%
BNP Paribas Headline CPI: 4.40% 5% - 5.25% (by Q1 '23)
UBS Headline CPI: 3.6% 5%
BofA Headline CPI: 4.4% 5% - 5.25%(by March
'23)
Credit Suisse Headline CPI: 3.8% 4.75% - 5% (by March
'23)
Deutsche Bank Headline CPI: 4.3% 5.125% (by March '23)
Citi Headline CPI: 4.1% 5.25% - 5.5%
Morgan Stanley sees the Fed delivering its first rate cut by December 2023, taking the benchmark rate to 4.375% by the end of that year. Barclays sees the rate between 4.25% and 4.50% by the end of next year, while Deutsche Bank sees it at 4.625% after a rate cut.
UBS expects U.S. inflation to be "close enough" to the Fed's 2% target by the end of 2023 for the central bank to consider rate cuts. BofA sees the rate between 2.75% and 3.00% by the end of 2024.
Forecasts for currency pairs, yields on U.S. 10-year Treasuries, S&P 500 target by the end of 2023:
Bank EUR/USD USD/ USD/JPY S&P 500 U.S.
CNY Target 10-year
yield
Morgan Stanley 1.08 6.8 140 3,900 3.50%
Goldman Sachs 1.05 6.9 140 4,000 4.34%
Barclays 1.05 7.3 131 3.75%
J.P.Morgan 1.0 7.2 133 3.4%
BNP Paribas 1.06 6.9 128 3,400 3.50%
UBS 1.04 6.9 135 3,700 3%
(by June
2023)
BofA 1.1 7 137 4,000 3.25%
Credit Suisse 1.02 7.3 135 4.10%
Deutsche Bank 1.1 6.8 125 4,500 3.65%
Citi 1.15 6.90 133 4.35%
Wells Fargo 1.01 - 1.09 130 - 140
Most banks see the euro falling below parity to the dollar during the year, before clawing back by year-end.
As of 1315 GMT on Nov. 30, 2022:
EUR/USD: 1.038
USD/CNY: 7.07
USD/JPY: 138.75
U.S. 10-year Treasury yield: 3.72%
S&P 500 level (as of close on Nov. 29): 3,957.63
(Compiled by Susan Mathew in Bengaluru; Edited by Sriraj Kalluvila, Anil D'Silva and Shounak Dasgupta)