Economists MarketMatrix.net at Goldman Sachs now expect the Fed to raise interest rates seven times this year to curb the spike in inflation, according to the Market Matrix. Previously, they expected 5 rate hikes.
Goldman Sachs quickly adjusted its interest rate outlook after the United States (USA) January Consumer Price Index (CPI) report showed an annual growth rate of 7.5 percent, the largest increase since 1982. Inflation has generally climbed, expanding from food and energy to categories including household items and health insurance, the report shows.
Economists led by Jane Hadzus predict that the Fed will raise interest rates at seven consecutive meetings of the Federal Open Market Committee (FOMC) this year, each by 25 basis points.
Goldman Sachs said a 50 basis point rate hike was justified in March given extremely high inflation, strong wage growth and high short-term inflation expectations, but so far monetary authorities may have favored multiple rate hikes.
"Most Fed officials who commented opposed a 50 basis point rate hike in March," the report said. Therefore, we think the more likely path is a longer rate hike of 25 basis points. ”
However, St. Louis Fed President James Bullard said after the CPI report was released that he supported raising rates by 1 percentage point by early July, meaning at least one rate hike of 50 basis points, which would be the first time since 2000 that it would be raised by such a high margin.
Economists at Goldman Sachs said: "If other players join him, we will consider changing our forecasts, especially if the market continues to see a high probability of a 50 basis point rise in March." ”
Now, CME's Fed Rate Watch Tool (FedWatch) shows that the probability of a 50 basis point rate hike by the Fed in March is close to 100%.
In fact, even before the CPI report, economists at Bank of America expected the Fed to raise interest rates seven times this year.
Ethan Harris, Bank of America's director of global economic research, said, "If I were the Fed, I would be increasingly nervous because it's not just a handful of outliers that are driving wages up." If I were the Fed chairman... I'll raise interest rates early in the fall. When we get this broad-based growth and start to affect wages, you're lagging behind and you need to start acting. ”
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