VIEW: Goldman Now Look for Back-to-Back 50bp Hikes At Upcoming Fed Meetings

Goldman Sachs note that “In a speech earlier today, Chair Powell said, “There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability.” He repeated the call “to move expeditiously” at the end of the speech. Our best guess is that the shift in wording from “steadily” in January to “expeditiously” today is a signal that a 50bp rate hike is coming. We now forecast 50bp hikes at both the May and June meetings, followed by 25bp hikes at the four remaining meetings in the back half of 2022 and three quarterly hikes in Q1-Q323. We have left our forecast of the terminal rate unchanged at 3-3.25%. We continue to expect the FOMC to announce the start of balance sheet reduction at the May meeting, but after today’s comments we do not think this is necessarily an obstacle to also delivering a 50bp hike in May. The Russian invasion of Ukraine and the possibility that financial conditions could tighten more aggressively in response to a faster pace of Fed tightening both present downside risks to our new forecast of two 50bp rate hikes, though neither looks like an obstacle at this point.”