Goldman Sachs Lifts Forecasts For Fed Rate Hikes on Jerome Powell’s Hawkish Signal

Goldman Sachs now expects rate hikes of 75 bps in November, 50 bps in December and 25 bps in February for a peak funds rate of 4.5%-4.75% compared with 4%-4.25% before.

Enda Curran

22 Sep 2022, 12:01 PM IST

Steam rises as pedestrians cross a street near the New York Stock Exchange. Photographer: John Taggart/Bloomberg

(Bloomberg) -- Goldman Sachs Group Inc. economists have raised their forecast for the Federal Reserve’s pace of interest rate hikes after Wednesday’s increase and Chair Jerome Powell’s hawkish signal.

The US lender now expects rate hikes of 75 basis points in November, 50 basis points in December and 25 basis points in February for a peak funds rate of 4.5%-4.75% compared with 4%-4.25% before, economists led by Jan Hatzius said in a research note.

Goldman Sachs Lifts Forecasts For Fed Rate Hikes on Jerome Powell’s Hawkish Signal

The projections came hours after the Fed raised interest rates by 75 basis points for the third time in a row and forecast of a further 1.25 percentage points of tightening before year end. That was more hawkish than expected by economists.

In addition, Fed officials cut growth projections, raised their unemployment outlook and repeatedly spoke of the painful slowdown that’s needed to curb price pressures running at the highest levels since the 1980s.

Goldman said the main factors that will drive the path for the funds rate in 2023 include how quickly growth, hiring and inflation will slow. “While there are risks in both directions, we see more risk that a higher peak rate will be needed to reverse overheating than that the Fed will stop earlier.”

Much will also depend on the willingness of the Fed to slow or stop tightening even while inflation is still uncomfortably high.

WATCH: “There’s a very high likelihood that we’ll have a period of below-trend growth, by which I mean much lower growth,” Powell says.Source: Bloomberg

“While the goalposts shifted today, this appeared to be a one-time adjustment as participants raised their estimate of the short-run nominal neutral rate to reflect the high inflation environment,” according to the Goldman note.

Analysts at Barclays Plc also raised their projections for Fed rate hikes and now expect another 150 basis points on top of Wednesday’s 75 basis points, with the target range peaking at 4.50%-4.75% in the first quarter of next year.

“We revise our call for the funds rate to a 75 basis points hike in November (versus 50 basis points prior), followed by a 50 basis points increase in December (versus 25 basis points prior),” the Barclays economists wrote in a note.

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