With inflation well above target and the labor market not far from maximum employment, Goldman Sachs released a research report predicting that the Fed will raise interest rates three times next year, in March, June and September, after the FOMC official announcement accelerated Taper.
Previously, Goldman Sachs expected the Fed to raise interest rates four times in 2023.
Goldman Sachs believes the Fed will raise the benchmark rate by at least 75 basis points.
Goldman Sachs believes that the Fed will announce the opening of a balance sheet reduction.
Goldman Sachs said that due to the advance of the interest rate hike, the Fed may begin to shrink its balance sheet in the fourth quarter of 2022. Previously, Goldman Sachs expected the Fed to start shrinking its balance sheet in the first half of 2023.
Goldman Sachs believes that the Fed's eventual balance sheet reduction may have a greater impact on the market than a rate hike, because the Fed is buying too many assets, which has led to an unprecedented lack of liquidity in the US treasury market. In January 2020, before the pandemic, the Fed's balance sheet was $4.1 trillion, and now it has increased to $8.7 trillion.
Goldman Sachs expects the Fed's balance sheet-shrinking performance this time to be more decisive and bold than it was in the aftermath of the previous financial crisis, or it may shrink from 36 percent to 21 percent, or about 15 percent of GDP.
From an investor's point of view, the tightening of the US dollar will obviously be the beginning of a round of sheep shearing, and there are eggs under the nest, which needs to be closely watched.