Nomura sees bigger Fed rate hikes in September, November

Nomura Holdings Inc. analysts boosted their forecasts for interest-rate hikes by the Federal Reserve through the year-end.

The Fed is seen to raise the benchmark rate by 75 basis points this month and a half-point at the November meeting, according to a report released Friday by economists led by Aichi Amemiya. That’s an increase of 25 basis points for each of their previous forecasts for those decisions.

“Comments from FOMC participants over recent weeks suggest a greater urgency to raise rates somewhat more rapidly and to a higher overall level in order to more forcefully address persistently above-target inflation,” according to the report.

Four factors have raised that urgency, the economists write:

·  Fed officials seem “increasingly concerned” that the short-term nominal neutral rate has risen on higher trend inflation and/or inflation expectations

·  Even as inflation might have peaked, officials are now more concerned with where it will settle -- and in that, there’s little improvement

·  Financial conditions are still relatively too easy

·  Bond markets have priced in a more aggressive Fed policy rate path amid hawkish Fedspeak, opening the door for faster hikes

The analysts maintained their projections of 25-basis-point increases each in December and February, which would bring their terminal interest rate forecast to 4%-4.25%.