Goldman Sachs is forecasting that the US Federal Reserve will raise interest rates five times in 2022, versus four previously, with a hike expected in March, according to a note from its economists late on Friday.
Economists have scrambled to update rate hike expectations since the Fed on Wednesday said it was likely to hike interest rates in March and reaffirmed plans to end its bond purchases that month in what Fed Chairman Jerome Powell pledged will be a sustained battle to tame inflation.
At the conclusion of Wednesday’s meeting, Powell said a decision would be made in coming months on when to start shrinking the central bank's government bonds and mortgage-backed securities.
Goldman economists David Mericle and Jan Hatzius said in the note they expect the Fed to hike rates in March and May and announce the start of its balance sheet reduction in June, then follow with hikes in July and September. They subsequently expect the Fed to return to a quarterly pace in the fourth quarter with one hike in December to end the year at 1.25-1.5%.
The economists said they had revised up their inflation path expectation following data this week while in addition, "Chair Powell’s comments earlier this week made it clear that the Fed leadership is open to a more aggressive pace of tightening."
Goldman said it continues to expect three hikes in 2023 and for the Fed to reach the same terminal rate of 2.5-2.75% in 2024.
Earlier in January, Goldman said it expected four hikes this year and for the process of balance sheet reduction to start as soon as July.