Consistently high inflation along with a labour market near full employment will prompt the U.S. Federal Reserve to raise interest rates a number of times in the coming year, according to the latest forecast from Goldman Sachs (NYSE:GS).
The Wall Street firm’s chief economist Jan Hatzius said in a note Sunday that he now figures the Fed to enact four quarter-percentage point rate hikes in 2022, representing an even more aggressive path than the Fed’s indications of a just a month ago. The Fed’s benchmark overnight borrowing rate is currently anchored in a range between 0%-0.25%, most recently around 0.08%.
"Declining labour market slack has made Fed officials more sensitive to upside inflation risks and less sensitive to downside growth risks," Hatzius wrote. "We continue to see hikes in March, June, and September, and have now added a hike in December for a total of four in 2022."
Goldman had previously warned investors to anticipate three hikes, in line with the level Fed officials had penciled in following their December meeting.
The firm’s outlook for a more hawkish Fed come just a few days ahead of key inflation readings this week that are expected to show prices rising at their fastest pace in nearly 40 years. If the Dow Jones estimate of 7.1% year-over-year consumer price index growth is correct, that would be the sharpest gain since June 1982. That figure is due out on Wednesday.
At the same time, Hatzius and other economists do not expect the Fed to be deterred by declining job growth.
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