Goldman Expects Four Rate Hikes This Year From Fed

Goldman Sachs expects the Federal Reserve to increase interest rates four times this year, more than previously anticipated, as the U.S. labor market nears full employment and the Fed is faced with soaring inflation.

Goldman’s chief economist Jan Hatzius said in a research note on Sunday that he now expects the Fed to make four quarter-percentage point rate hikes in 2022.

The Wall Street bank had earlier predicted rate hikes in March, June and September and now expects another in December.

Hawkish expectations from the Fed came amid rapid progress in the U.S. labor market, whose unemployment rate had fallen to 3.9 percent in December, nearing the pre-pandemic rate in 2019 of 3.5 percent.

“Declining labor market slack has made Fed officials more sensitive to upside inflation risks and less sensitive to downside growth risks,” Hatzius wrote.

The Dow Jones had estimated a 7.1 percent year-on-year inflation in December, which would be the sharpest rise since June 1982 if correct. The official figure is due on Wednesday.

The minutes of the Fed’s December monetary policy meeting also hinted at the central bank’s plans to begin quantitative tightening, or cutting down its $8.8 trillion balance sheet to decrease the amount of liquidity within the economy.

The Fed had sliced its $120 billion asset-purchase program in half as of January and is expected to be completely phased out by March.

“We are therefore pulling forward our runoff forecast from December to July, with risks tilted to the even earlier side,” Hatzius wrote. “With inflation probably still far above target at that point, we no longer think that the start to runoff will substitute for a quarterly rate hike.”


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