The Federal Reserve is predicted to increase interest rates by 50 basis points in March, according to Citi's forecast.

• Citigroup economists anticipate a 50-basis-point interest rate hike for March.
• When the Fed meets next month, it is predicted that there will be a 0.25% increase in interest rates by Wall Street economists.
• According to Citi economists, the core CPI for January indicates that inflation is likely to remain at approximately 6% and expand further, rather than decreasing as the Fed had predicted.

The Federal Reserve is predicted to increase the fed funds target rate by 50 basis points in March, according to Citi economists.

The bank's forecast was influenced by the 7.5% annual increase in the consumer price index in January, which was higher than the 7% increase in December.

Citi predicted five 25-basis-point rate hikes in 2022, starting next month, while Wall Street economists anticipated a quarter-point hike for March.

The likelihood of a half-point rate hike at the next meeting of the fed funds futures market increased after the inflation report and hawkish comments from St. Louis Federal Reserve President James Bullard. Bullard stated that he would prefer a full 100-basis-point hike, or a total 1% rate increase, by July.

The Citi economists predict that the January core CPI indicates sustained inflation of approximately 6%, which is spreading more broadly instead of slowing down as the Fed had assumed. As a result, they expect the Fed to raise interest rates by 50 basis points in March, followed by four 25 basis point hikes in May, June, September, and December.

Citi economists anticipate three more interest rate increases in 2023, amounting to 1.5 percentage points or 150 basis points, after the hikes in 2022.

In an effort to combat the pandemic, the Fed reduced the fed funds rate to zero in early 2020.

The Citi economists predict that strong core inflation will persist in February, with core personal consumption expenditures inflation expected to be above 3.5% in the fourth quarter compared to the same period last year. This is significantly higher than the Fed's median forecast of 2.7% in its December economic projections.

Diane Swonk, the chief economist at Grant Thornton, stated earlier Thursday that she anticipates a 50-basis-point increase in interest rates to occur in March.