(Bloomberg) — Federal Reserve officials will signal next week they’ll raise interest rates in March for the first time in more than three years and shrink their balance sheet soon after, economists surveyed by Bloomberg said.

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A majority of the 45 economists in the poll predicted the U.S. central bank will use its Jan. 25-26 policy meeting to telegraph a 25 basis-point increase in its benchmark rate, though two look for a surprise 50-basis-point hike — which would be the largest since 2000 — to combat surging price pressures.

The economists, surveyed between Jan. 14-19, were about evenly split between expecting the Fed to hike three or four times in 2022 in response to a stronger U.S. labor market and the highest inflation in almost four decades.

The Federal Open Market Committee meets for two days starting Tuesday and will issue a policy statement at 2 p.m. in Washington Wednesday. There will be no quarterly economic and rate forecasts published at this meeting. Chair Jerome Powell will hold a press conference 30 minutes later.

“The Federal Reserve has moved from being patient to panicking on inflation in a record period of time,” Diane Swonk, chief economist at Grant Thornton LLP, said in a survey response. “This is the first time that the Fed has chased instead of pre-empted inflation since the 1980s. The risk is that they overshoot and get overzealous on the fight against inflation — and hit the brakes too hard on monetary policy.”

In December, the FOMC doubled its pace of tapering of asset purchases, which is scheduled to bring the bond-buying program to a close in March. Powell told lawmakers that the buying would end that month, and a large majority of the economists said the committee will stick to the schedule, though a few looked for a conclusion in February.

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Much of next week’s meeting will be devoted to discussion of how and when to normalize policy following almost two years of near-zero interest rates and massive asset purchases in response to the Covid-19 pandemic.

The FOMC is likely to make changes to its policy statement that clearly signal a hike at its next meeting in March, according to 43% of economists, while another 43% say officials will suggest an increase may be appropriate soon, leaving the precise timing flexible.

While economists have raised their interest rate projections from the December survey, they are largely in line with the FOMC’s revised dot plot forecasts and a bit less steep than investors’ expectations of four hikes this year and of Bloomberg Economics’ prediction of five hikes.

What Bloomberg Economics Says…

“A March rate hike is almost a done deal in our view, and will be the first of many tightening steps this year as the Federal Reserve fights to control inflation. By mid-year, we expect the FOMC will recognize that they still will need to do more to give the best chance of ultimately achieving their 2% target. As a result, the committee will likely hike five times this year (all 25 basis points).”

— Anna Wong, chief U.S. economist

To view the full note, click here

Among those expecting a hawkish surprise are Bill Dunkelberg, National Federation of Independent Business chief economist, and Joel Naroff, president of Naroff Economics. They both are predicting a half-percentage-point hike in March.

“The Fed and Chair Powell lost a lot of credibility by describing inflation as transitory and will likely try to show that inflation is the primary concern by raising rates at least 50 basis points when the first hike occurs, which most likely will be in March,” Naroff said in a survey response.

While the omicron variant has resulted in some softness in recent economic data, with more workers out sick, the FOMC may choose to look past that and reiterate that economic and labor-market conditions continue to strengthen, in the view of a majority of economists. About one-third expect the statement to mention the weakness but say it will be temporary.

The Fed is likely to start winding down its balance sheet, now $8.86 trillion, shortly after liftoff of interest rates, though economists have varying views on when the reductions will start, as well as their pace and composition. The FOMC began discussions in December, and Fed leaders haven’t been specific in outlining their preferences.

Economists expect the runoff of maturing securities to commence this year, with 29% looking for a start from April to June and 40% expecting July to September. The median economist estimate looked for monthly reductions between $40 billion and $59.9 billion. The runoff would bring the size of the balance sheet down to $8.5 trillion at the end of this year and $7.6 trillion at the end of 2023, still far above pre-pandemic levels.

The Fed is likely to just allow runoff — as securities mature — and not directly sell assets, according to three-quarters of the economists.

Inflation isn’t coming down to the Fed’s 2% goal soon, in the view of economists. The survey showed the median respondent had 34% confidence in inflation returning to 2.5% or lower by the fourth quarter. Most of them blame supply issues associated with Covid-19 and strong demand from monetary and fiscal stimulus roughly equally.

While the Powell Fed has shifted to a more hawkish stance in response to surging inflation, the makeup of the FOMC will change this year. President Joe Biden has nominated Sarah Bloom Raskin for vice chair of supervision as well as Lisa Cook and Philip Jefferson for the other open spots on the board.

About a third of the economists expect the changes to result in monetary policy that will be slightly or substantially more dovish, concerned with full employment, while the majority say the policy outlook is essentially unchanged.

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