Daily Management Review

Goldman Sachs Expects US Fed To Increase Rates Five Rate Times This Year


Goldman Sachs Expects US Fed To Increase Rates Five Rate Times This Year
According to a forecast by Goldman Sachs, the central bank of the United States – the US Federal Reserve, is set to make five increases in its interest rates in 2022 compared to estimates of four raises as made previously.
According to a note from the economists of the bank late on Friday, the lender expects the first rate hike by the Fed to take place in March this year.
On Wednesday this week, the Fed said that it was likely to hike interest rates in March and since then a range of economists has been struggling to update their expectations of rate hikes this year. The Fed this week also reconfirmed its plans of bringing an end to bond purchases program in March itself month. According to Fed Chairman Jerome Powell, that measure will be a sustained battle to tame the rising high inflation rate in the country.
After the end of the Fed meeting on Wednesday, Powell said that the central bank would hold a discussion in the coming months about the timing of the start of the ending of the central bank's government bonds and mortgage-backed securities.
Goldman Sachs expects the US central bank to increase rates in March this year, followed by another rate hike in May, and declare the beginning of its balance sheet reduction in June, according to a note issued by Goldman economists David Mericle and Jan Hatzius. The economists said in the note that they expect the Fed to make two more rate increases in July and September.
The economists also subsequently expect the Fed to get back to a quarterly pace in the fourth quarter after the Fed makes one final rate hike in December this year taking the total interest rate to between 1.25 per cent and 1.5 per cent.
After data was released earlier this week, the two economists who write the note said that they had revised up their expectations for the path of inflation.
"Chair Powell’s comments earlier this week made it clear that the Fed leadership is open to a more aggressive pace of tightening,"  the economists said in the note.
According to Goldman, the Fed will raise interest three times in 2023 and will reach the same terminal rate of 2.5-2.75 per cent in 2024.
Goldman indicated in January that it projected four rate hikes this year and that the balance sheet reduction process would begin as early as July.