Daily Management Review

Three Additional U.S. Rate Increases Are Anticipated By Goldman Sachs And Bofa This Year


Three Additional U.S. Rate Increases Are Anticipated By Goldman Sachs And Bofa This Year
The U.S. Federal Reserve is expected to raise interest rates three more times this year, according to Goldman Sachs and Bank of America, who raised their projections after data indicated persistent inflation and a robust labor market.
According to data released on Thursday, producer prices increased in January by the largest margin in seven months, while a Labor Department report revealed that the number of Americans submitting new applications for unemployment benefits unexpectedly decreased last week.
"In light of the stronger growth and firmer inflation news, we are adding a 25bp (basis points) rate hike in June to our Fed forecast, for a peak funds rate of 5.25%-5.5%," Goldman Sachs economists led by Jan Hatzius said in a note dated Thursday.
While this is going on, money markets are currently pricing in a 5.3% terminal rate by July.
BofA Global Research anticipates a 25 bps increase at the June Fed meeting, raising the terminal rate to a range of 5.25%-5.5%.
It had previously planned two rate increases of 25 basis points each for the meetings in March and May.
"Resurgent inflation and solid employment gains mean the risks to this (only two interest rate hikes) outlook are too one-sided for our liking," BofA wrote in a client note.
Following the most recent U.S. data, European investment bank UBS predicted that the Fed would raise rates by 25 basis points at its meetings in March and May, potentially leaving the Fed funds rate in the 5%–5.25% range.
But in stark contrast to its American counterparts, UBS predicted that the Fed would lower interest rates at its meeting in September this year.
Prior to the most recent U.S. data, J.P. Morgan predicted that by the end of June, the terminal rate would be 5.1%.
Before the release of the most recent data, the majority of economists surveyed by Reuters predicted that the Fed would increase interest rates at least twice more in the upcoming months, with the possibility of further increases. None of them anticipate a reduction in rates this year.