Goldman Sachs expects the Federal Reserve to move even more aggressively to raise interest rates in 2022 than previously thought.
The financial services giant came out with a research note that predicted the Fed will hike rates four times this year, more than the three times that were expected after a meeting of top central bank officials last month. Goldman’s chief economist, Jan Hatzius, now foresees hikes in March, June, September, and December.
Hatzius cited the minutes from the Fed’s December meeting, which were released last week. The minutes indicated that central bank officials are taking a more hawkish approach to monetary policy than they have previously. The research note said that discussions surrounding the normalization of the balance sheet conveyed “a greater sense of urgency than we had expected.”
“We are therefore pulling forward our runoff forecast from December to July, with risks tilted to the even earlier side,” Hatzius wrote. “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.”
WHAT TO EXPECT WHEN THE FEDERAL RESERVE HIKES INTEREST RATES
The last time the Fed hiked interest rates was in 2018, after which it began incrementally reducing rates. In 2020, central bank officials dropped the federal funds rate to near-zero, at the outset of the COVID-19 pandemic, and have kept them at that level ever since. Now, Fed officials expect a series of rate hikes in the coming months and years, the first of which could come in March.
Jamie Dimon, the chairman and CEO of JPMorgan Chase, went even further than Goldman Sachs in his prediction about the Fed’s actions this year. He told CNBC on Monday that he would be “surprised” if the Fed only hikes interest rates four times. The billionaire businessman also expressed optimism about the country’s economic trajectory in 2022.
“We’re going to have the best growth we’ve ever had this year, I think since maybe sometime after the Great Depression,” Dimon remarked. “Next year will be pretty good too.”
The rate hikes are in response to soaring inflation and indications of a tightening labor market. While the latest jobs report from December, released last week, fell below consensus expectations, the unemployment rate still declined to 3.9%. The unemployment rate is the lowest since the 3.5% registered prior to the start of the pandemic.
Additionally, last month, new claims for unemployment hit the lowest level for initial claims in 52 years, a sign that layoffs are very rare as employers try hard to hold on to workers.
Consumer prices grew 6.8% for the year ending November, which is the fastest pace of inflation in nearly four decades. The newest inflation numbers will be released on Wednesday and are highly anticipated. Forecasters expect that inflation will have increased to a 7% year-over-year pace in December.
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In other Fed news, Chairman Jerome Powell, a Republican who was recently renominated for the role by President Joe Biden, will testify at a hearing before Congress on Wednesday.
