According to reports, according to the latest statement from (Goldman Sachs Group Inc.) economists at Goldman Sachs, they now expect inflation to force the Fed's (Federal Reserve) to raise interest rates in July next year, a year earlier than previously expected.
Economists led by Jan Hatzius said in a new report that the Fed would raise its benchmark interest rate from zero to 0.25 per cent soon after it stopped its massive asset purchase programme. They also say there will be a second rate hike in November 2022, after which the Fed will raise interest rates twice a year.
Goldman Sachs expects Fed Chairman Colin Powell and his colleagues to announce next week that they will begin to slow the pace of asset purchases in November or December, at about $15 billion a month. Although policymakers had been divided over whether to start raising interest rates in 2022 or 2023, investors have stepped up their bets in recent weeks that inflation will force them to raise interest rates next year.
Economists at Goldman Sachs say the main reason for their new forecast is that they now expect inflation to be more stubborn than they previously thought. They now expect consumer price inflation, excluding food and energy costs, to remain above 4 per cent when austerity ends.
"We think this will be the least resistance path in the seamless transition from reducing bond purchases to raising interest rates," they said in the report. "
The Fed has targets for both inflation and employment. While the Fed has said it wants to maximise employment before raising interest rates, Hatzius and his colleagues say that because inflation is well above target and job opportunities are high, officials may conclude that labour market weakness remains mainly due to structural unemployment or workers' unwillingness to work.
