• Deutsche Bank (NYSE:DB) added a January rate hike to its forecast after October's hotter-than-expected CPI report, now expecting 25bps increases in December, January, and March.
  • The revised path would lift the Fed's target range to 4.50–4.75%, with the bank also raising its neutral-rate estimate to 3.75–4.00%.
  • A 50bps December move is possible but remains outside the bank's base case, even after hawkish comments from Fed Governor Waller.

Deutsche Bank has revised its US interest rate outlook, adding a quarter-point hike in January following October's unexpectedly strong inflation reading, according to a research note circulated Tuesday. The German lender now anticipates 25 basis point increases at each of the Fed's December, January, and March meetings, which would raise the federal-funds target range from 3.75–4.00% to 4.50–4.75%.

The change comes after October consumer prices rose 0.4% month over month, above the 0.3% consensus, while core CPI climbed 0.3% versus expectations of 0.2%. The data reinforced concerns that inflation remains stubbornly elevated, prompting Deutsche Bank to bring forward its tightening timeline. The bank also lifted its estimate of the neutral rate to 3.75–4.00%, signaling that rates may need to stay higher for longer.

A larger half-point move in December is possible, particularly after Fed Governor Christopher Waller argued before the CPI release that high inflation warranted considering such a step, analysts said. Still, the bank's base case remains for a standard quarter-point increase next month.

Deutsche Bank's more hawkish stance aligns with the Fed's own messaging. The central bank held rates steady at its October 28 meeting in a 10–2 vote, with Governors Lisa Cook and Beth Hammack dissenting in favor of an immediate quarter-point hike. The post-meeting statement described economic growth as strong and inflation as elevated, keeping the door open for further tightening.

The revised forecast implies three consecutive hikes totaling 0.75 percentage point, a pace that could catch some investors off guard. Markets had largely priced in a more gradual path, and an additional January move may prompt a repricing of short-term rates. "The risk is that the market is not fully pricing a January move," said one fixed-income strategist at a European bank, who spoke on condition of anonymity. "If Deutsche Bank is right, we could see a repricing."

Deutsche Bank's own performance has benefited from higher borrowing costs. In the third quarter, net revenue rose 4% year over year to €8.3 billion, while profit before tax climbed 8% to €2.6 billion. The bank's common equity tier 1 ratio stood at 14.0%, and its cost-to-income ratio improved to 62.4% from 64.4% a year earlier. However, credit-loss provisions increased 9% from the previous quarter to €501 million, reflecting commercial real estate de-risking and a specific credit event in its corporate bank. Higher rates can boost net interest income but also heighten credit risk.

This is not the first time Deutsche Bank has adjusted its rate forecast. In June, it shifted from expecting steady rates to forecasting quarter-point increases in September and December, followed by unchanged rates in 2027. The Fed subsequently raised rates in September and paused in October. The latest revision extends the tightening cycle beyond the bank's earlier outlook.

Deutsche Bank declined to comment on the forecast when contacted. The original research note, which would clarify the bank's assumptions and terminal rate, was not available at the time of publication. Until then, the market is left with a headline that raises more questions than it answers.