Goldman Sachs Now Predicts Fed to Hike Seven Times in 2022

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(Bloomberg) — Goldman Sachs Group Inc (NYSE:GS).’s economists now expect the Federal Reserve to raise interest rates seven times this year to contain surging U.S. inflation, a change from the five hikes they had seen earlier.

The change of view comes after the U.S. consumer price index report for January showed a 7.5% annual increase, the biggest since 1982. Gains were broad-based, extending beyond food and energy to categories including household furnishings and health insurance.

Economists led by Jan Hatzius are tipping the Fed will move by 25 basis points at seven consecutive meetings of the Federal Open Market Committee.

While there’s a case to be made for a 50 basis point hike in March given the combination of very high inflation, hot wage growth and high short-term inflation expectations, the indications from policy makers so far are pointing to more incremental moves, according to the Goldman analysts. 

“Most Fed officials who have commented have opposed a 50 basis points hike in March,” the Goldman analysts wrote in a note. “We therefore think that the more likely path is a longer series of 25 basis points hikes instead.”

Federal Reserve Bank of St. Louis President James Bullard said he supports raising interest rates by a full percentage point by the start of July — including the first half-point hike since 2000 — in response to the hottest inflation in four decades.

“We would consider changing our forecast if other participants join him, especially if the market continues to price high odds of a 50 basis points move in March,” the Goldman analysts said.

©2022 Bloomberg L.P.