Economists are widely expected to hint at next week's meeting that Fed officials will raise interest rates by 25 basis points for the first time in more than three years in March and start shrinking their balance sheet soon.

In addition, a handful of economists believe the Fed will raise interest rates by 50 basis points unexpectedly, the biggest increase since 2000, in response to soaring inflationary pressures.

Is it a foregone conclusion to raise interest rates in March?

Roughly half of the economists consulted and interviewed by the Bloomberg from January 14 to 19 expect the Fed to raise interest rates three or four times in 2022, arguing that the Fed is determined to deal with a stronger US labor market and the highest rate of inflation in nearly 40 years.

The Federal Open Market Committee (FOMC) will hold a two-day meeting starting next Tuesday local time and issue a policy statement in Washington on Thursday at 3am Beijing time. In addition, the meeting will not release quarterly economic and interest rate forecasts, Federal Reserve Chairman Powell will attend a press conference in 30 minutes.

It is understood that Diane Swonk, chief economist of the Grant Thornton LLP, replied in a survey report: "the Fed's attitude towards inflation has changed from patience to panic, and this is the first time since the 1980s that the Fed has appeared to be" suppressed "by inflation rather than" pre-emptive ". The risk is that they may be too aggressive in the fight against inflation and tighten monetary policy too much. "

In December, FOMC doubled the pace of its Taper, which is likely to end in March. Economists expect next week's meeting to focus on how and when to normalise monetary policy. 43 per cent of economists said the FOMC was likely to revise its policy statement to make clear the signal of an interest rate hike in March, while another 43 per cent said officials would hint at an appropriate rate hike soon, but would not disclose the timing of the rate hike, saying only that the arrangements would be relatively flexible.

Economists raised their expectations for interest rates based on December data, which is basically in line with FOMC's revised bitmap forecasts and lower than market investors' expectations for four rate increases this year and five for some Bloomberg Economics.

In our view, an interest rate hike in March is almost a foregone conclusion, which will be the first step in many of the tightening measures taken by the Fed to control inflation. By the middle of the year, we expect FOMC to recognise that they still need to do more to finally achieve the 2 per cent target. As a result, it is possible to raise interest rates five times this year (25 basis points each). Anna Wong, chief US economist at Bloomberg Economics, said.

Naroff Economics, president of Naroff Economics, said in a reply: "the Fed has lost some credibility by unanimously describing inflation as temporary, and they may try to prove that inflation is an urgent problem by raising interest rates by 50 basis points for the first time in March. "

Although the growing spread of the O'Micron mutant virus has led to recent weak economic data and more workers taking sick leave, in the view of most economists, the FOMC may choose to ignore this and reiterate the trend of continued strength in the economy and the labour market. About 1/3 of economists expect the Fed to mention this in its statement, but will say it will be temporary.

Will it imply that the table time will be reduced?

There is a market view that the Fed may start shrinking its balance sheet soon after raising interest rates, which currently stands at about $8.86 trillion. Economists currently have different views on when to start shrinking and how to progress. FOMC began to discuss shrinking in December, but Fed officials did not specify their outlook and attitude.

Economists expect the Fed to start reducing its bond holdings this year, with 29% expected to start from April to June and 40% expected to start from July to September. The median forecast by economists is a reduction of $40 billion to $59.9 billion a month. They expect the bond reduction to reduce the Fed's balance sheet to $8.5 trillion by the end of the year and $7.6 trillion by the end of 2023, but still much higher than it was before the COVID-19 epidemic.

3/4 of economists believe that as its holdings mature, the Fed may only allow some bonds to spin off its portfolio rather than sell them directly on the market.

According to economists, inflation will not fall to the fed's 2% target any time soon. The median confidence of respondents that inflation rebounded to 2.5% or less in the fourth quarter was 34%, according to the survey. Most economists blame supply chain problems on problems related to the COVID-19 epidemic and strong demand from monetary and fiscal stimulus.

As for whether the nominee will affect the already "hawk" Fed? Economists generally believe that the emergence of the three nominees will not change the policy tone of FOMC.