In an analyst note to clients, the JPMorgan economists – led by Bruce Kasman – projected nine, quarter-percentage-point rate increases at every policy-setting meeting until March 2023.
"We now look for the Fed to hike 25bp at each of the next nine meetings, with the policy rate approaching a neutral stance by early next year," the note said.
The revised outlook comes after the Labor Department reported that the consumer price index rose 7.5% in January from a year ago, marking the fastest increase since February 1982, when inflation hit 7.6%. The CPI – which measures a bevy of goods ranging from gasoline and health care to groceries and rents – jumped 0.6% in the one-month period from December.
The possibility of an aggressive rate hike plan this year is also gaining traction among traders: According to the CME's FedWatch tool, a majority of traders are now pricing in a chance of an increase at every Fed meeting this year. Many Wall Street banks, including Goldman Sachs and Bank of America, also expect the Fed to raise rates seven times this year in order to quell rising inflation.
Minutes from the U.S. central bank's Jan. 25-26 meeting reinforced the belief that the Fed could chart a more aggressive course to normalize policy.
Many policymakers said last month that current economic conditions could necessitate a quicker normalization of policy than in 2015, though they stressed that this outlook ultimately hinged on financial developments. The Fed kept rates ultra-low for years following the 2008 financial crisis, only raising them once at the end of 2015. Officials subsequently raised rates eight more times over a three-year period.
"Compared with conditions in 2015 when the Committee last began a process of removing monetary policy accommodation, participants viewed that there was a much stronger outlook for growth in economic activity, substantially higher inflation, and a notably tighter labor market," the minutes said. "Consequently, most participants suggested that a faster pace of increases in the target range for the federal funds rate than in the post-2015 period would likely be warranted, should the economy evolve generally in line with the Committee's expectation."
Although policymakers did not provide an exact timeline for the interest rate liftoff, they hinted it could take place during their meeting on March 15-16. The minutes reinforced that sentiment, with officials indicating they plan to raise rates "soon" and that they will begin reducing the $9 trillion balance sheet shortly thereafter.
"There’s nothing really concrete when it comes to a timeline, so there’s still a big question mark there," said Mike Loewengart, managing director of investment strategy at E*Trade. "But the bottom line is rate hikes are coming, and they’re coming soon. Investors should keep in mind that even with a few hikes, rates will remain very low by historical standards, so while they may create volatility, in the long term investors should take it in stride."