VIEW: Goldman: 50bp Hike In July Looks Likely

Goldman Sachs note that “Chair Powell said that 50bp increases in the funds rate should be on the table at the next couple of meetings. We see this as a strong signal. We already expected a second 50bp hike in June and are revising our Fed forecast to include a third 50bp hike at the July meeting too (vs. 25bp previously).

• “In response to a question, Powell said that a “75bp increase is not something the committee is actively considering.”
• “We are not making any additional changes to our forecast for the remainder of 2022 beyond July. A fourth 50bp rate hike is possible in September too, but we are maintaining our forecast that the FOMC will revert to 25bp hikes at that point until we see additional data. While some Fed officials might see the FOMC’s 2.25-2.50% neutral rate estimate as a possible point to transition from 50bp to 25bp hikes - which would imply a fourth 50bp hike in September - Powell de-emphasized the neutral rate and highlighted that estimates of it are highly uncertain. This suggests that the neutral rate might be a less important input into policy decisions.”
• “We have not changed our terminal rate forecast of 3.00-3.25%, but we now expect to reach that rate by Q223 (vs. Q323 previously).”