VIEW: Goldman Now See 5 Hikes In ‘22

Goldman Sachs’ Fed forecast now includes “five 25bp rate hikes in 2022, versus four previously.” They now expect the “FOMC to hike in March and May, announce the start of balance sheet reduction in June, hike again in July and September, and then return to a quarterly pace in Q4 with one hike in December to end the year at 1.25-1.50%.” They continue “to expect the FOMC to hike three times in 2023 and to reach the same terminal rate of 2.50-2.75% in 2024.”

• They note that they cautioned in recent weeks that the risks to their forecast “were tilted to the upside because the inflation picture could push the FOMC to hike at consecutive meetings. Following the release of the employment cost index and core PCE inflation, the evidence that wage growth is running above levels consistent with the Fed’s inflation target has strengthened. In addition, Chair Powell’s comments earlier this week made it clear that the Fed leadership is open to a more aggressive pace of tightening.”
• They note that their “forecast change represents a recalibration of the risks around the Fed’s path. While the baseline forecast has risen by one hike, the weighted-average view across all possible scenarios has changed by less. The FOMC could hike fewer than five times if market conditions change abruptly at some point or if the economy decelerates even more than our below-consensus forecast implies, but it could also hike more than five times in 2022 if inflation remains high enough to make continuing to hike at every meeting a natural course later in the year as well.”