Goldman Sachs: Consecutive Hike Risks Reinforced

Goldman’s expectations of high inflation pushing the FOMC to consider hiking at consecutive 2022 meetings was reinforced by the January meeting. So Goldman's sticking to their view of 4 hikes in 2022 for the moment, though see upside risks.

• “While Powell did not directly address hiking at consecutive meetings, he hinted at the possibility of a faster pace in three ways. First, he emphasized that the economy is in a very different place than when the FOMC hiked last cycle. Second, he acknowledged the uncertainty about the inflation outlook and said that monetary policy needs to be in a position to address different outcomes, including one in which inflation runs higher.
• “Third, he said that the FOMC would move “steadily” away from its current policy stance, avoiding the term “gradual” used last cycle.”
• Goldman notes that “gradual” is associated with 4 hikes per year (the last cycle), while “measured” would have been associated with 8 hikes per year (mid-2000s cycle). “Steadily”, says Goldman, means “at least once a quarter, but with the option to go faster”.
• One reason Goldman’s sticking with its 4 hike forecast is that the Fed pointing to hikes may tighten financial conditions that make it harder for the Fed to actually deliver on hikes.
• Goldman’s expectation for a July QT announcement was reaffirmed in light of Powell’s comments that discussions were expected to take at least two more meetings.