VIEW: Goldman Sachs: Moving to Seven Rate Hikes in 2022

Goldman Sachs note that “Following this morning’s strong CPI print, we are raising our Fed forecast to include seven consecutive 25bp rate hikes at each of the remaining FOMC meetings in 2022 (vs. five hikes in 2022 previously). We continue to expect the FOMC to hike three more times at a gradual once-per-quarter pace in 2023Q1-Q3 and to reach the same terminal rate of 2.5-2.75%, but earlier.”

• “We see the arguments for a 50bp rate hike in March. The level of the funds rate looks inappropriate, and the combination of very high inflation, hot wage growth, and high short-term inflation expectations means that concerns about falling into a wage-price spiral deserve to be taken seriously. We could imagine the FOMC concluding that even a meaningful risk of an outcome as serious as a wage-price spiral requires a more aggressive and immediate response.”
• “So far, though, most Fed officials who have commented have opposed a 50bp hike in March. We therefore think that the more likely path is a longer series of 25bp hikes instead. St. Louis Fed President James Bullard became the first FOMC participant to call for a 50bp hike earlier today, and we would consider changing our forecast if other participants join him, especially if the market continues to price high odds of a 50bp move in March.”