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Goldman Sachs note that “declining labor market slack has made Fed officials more sensitive to upside inflation risks and less sensitive to downside growth risks. Although the FOMC minutes mostly confirmed the message sent by Chair Powell in the December 15 press conference, the committee’s discussion around normalisation of the balance sheet did convey a greater sense of urgency than we had expected. Subsequently, San Francisco Fed President Mary Daly - whose hint in late November that the FOMC might accelerate tapering proved to be a signal worth heeding suggested that the runoff process might start after just 1-2 hikes. We are therefore pulling forward our runoff forecast from December to July, with risks tilted to the even earlier side. With inflation probably still far above target at that point, we no longer think that the start to runoff will substitute for a quarterly rate hike. We continue to see hikes in March, June, and September, and have now added a hike in December for a total of four in 2022. Our forecast for the terminal funds rate remains 2.50-2.75%.”

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