Federal Reserve to raise rates 7 times this year, says Goldman
Following Thursday’s strong US inflation print, Goldman Sachs now expects the US Federal Reserve to lift interest rates seven times this year, up from a previous forecast for five rate hikes.
Goldman expects the US central bank to raise rates by 25 basis points each time. In addition, it continues to expect the FOMC to hike three more times at a gradual once-per-quarter pace in 2023 Q1-Q3 and to reach the same terminal rate of 2.5-2.75%, but earlier.
"We see the arguments for a 50bp rate hike in March," it said in a note. "The level of the funds rate looks inappropriate, and the combination of very high inflation, hot wage growth, and high short-term inflation expectations means that concerns about falling into a wage-price spiral deserve to be taken seriously."
GS said it could imagine the FOMC concluding that even a meaningful risk of an outcome as serious as a wage-price spiral requires a more aggressive and immediate response.
"So far, though, most Fed officials who have commented have opposed a 50bp hike in March. We therefore think that the more likely path is a longer series of 25bp hikes instead."
On Thursday, St. Louis Fed President James Bullard’s became the first FOMC participant to call for a 50bp hike and GS said it would consider changing its forecast if other participants join him, especially if the market continues to price high odds of a 50bp move in March.
Figures released on Thursday by the Labor Department showed the consumer price index rose 7.5% in January compared with a year earlier, coming in above expectations for 7.2% and at the highest level since 1982.