With the Fed's interest rate decision this week unexpectedly sending out extremely hawkish policy signals, a number of prominent Wall Street investment banks have raised their forecasts for the number of interest rate increases by the Fed this year in recent days. On Friday, Goldman Sachs became the latest, with economists led by Jan Hatzius predicting that the Fed will raise interest rates five times this year, 25 basis points at a time.
Goldman Sachs economists Jan Hatzius and David Mericle said in a report released over the weekend that they expected the Fed to raise interest rates in March and May, and announce in June that it would start shrinking its balance sheet, and then raise rates again in July, September and December, meaning the federal funds rate range is expected to reach 1.25-1.5 per cent by the end of the year.
Before the Fed's interest rate meeting this week, Goldman Sachs expected the Fed to raise interest rates four times this year, and the balance sheet shrinking process would begin as early as July.
With regard to the increase in the number of expected interest rate increases and the advance of the contraction schedule, Goldman Sachs economists pointed out in the report that after the release of the latest data this week, the evidence of US wage growth above the Fed's inflation target has intensified, the bank has further raised its inflation expectations, and "Fed Chairman Colin Powell's comments earlier this week made it clear that the Fed leadership is open to a more aggressive pace of tightening."
Goldman Sachs said that if market conditions change, or if the economy slows much faster than expected and inflation remains high, the Fed is still likely to tighten monetary policy more severely than expected.
The bank now expects to raise interest rates three times in 2023 and expects the fed to reach a terminal rate of 2.5 per cent and 2.75 per cent in 2024.
A number of investment banks raise their forecasts for the number of interest rate hikes by the Federal Reserve
Federal Reserve Chairman Colin Powell said at a news conference after this week's interest rate meeting that Fed officials are ready to raise interest rates in March and that if more measures are needed to curb inflation, which has risen at the fastest pace in 40 years, do not rule out the possibility that action will be taken at every meeting.
After the Fed's decision, a number of investment banks had raised their forecasts for the number of Fed rate hikes earlier than Goldman Sachs.
Among them, Bank of America's expectations are undoubtedly the most radical. Bank strategist Ethan Harris said in a report to clients on Friday. "We now expect seven interest rate increases of 25 basis points each this year, with the federal funds rate peaking at 2.75% Mel 3.00%. This should have a lagging impact on the economy and put pressure on economic growth in 2023."
In addition, BNP Paribas currently expects the Federal Reserve to raise interest rates six times this year, while Deutsche Bank and others have the same latest forecasts as Goldman Sachs.
Evercore ISI also raised its benchmark forecast for the Fed's rate hikes this year to five, saying it could be as many as seven or as few as three, depending on the situation. "our basic assumption now is that the Fed will raise interest rates in March, May and June, announce a contraction in July, raise interest rates in September, hold back because of cooling inflation in November, and raise interest rates again in December," Krishna Guha, head of central bank strategy at the agency, said in a note to clients.
Nomura even expects the Fed's central bank to raise interest rates by 50 basis points in March, its biggest rate hike since the turn of the century.
Atlanta Fed Chairman Bostick also said in an interview with the British media on Friday that if inflation remains high, the Fed may increase interest rates to 50 basis points. For now, Mr Bostick still insists on raising interest rates three times (25 basis points each) in 2022, the first of which will be in March, but he also said a more aggressive approach could be taken if economic data needed it.
Author: Xiaoxiang
