Goldman Sachs "Inflation Impact... Fed May Raise Interest Rates More Than 4 Times This Year"

[Asia Economy New York=Special Correspondent Joselgina] Goldman Sachs, which has stated that the U.S. Federal Reserve (Fed) will raise the benchmark interest rate four times this year, predicted that additional rate hikes exceeding this number could be possible depending on future inflation trends. This suggests that the Fed may take a more aggressive approach to raising interest rates than the market expects in order to curb inflation at its highest level in 40 years.

According to economic media CNBC on the 23rd (local time), David Mericle, an economist at Goldman Sachs, said in an investor note released the day before, "Our (Goldman Sachs) base forecast is four rate hikes in March, June, September, and December," adding, "However, the likelihood of tightening measures such as balance sheet reduction in May is increasing, which could ultimately lead to more than four rate hikes."

This statement came just days before the Federal Open Market Committee (FOMC) meeting scheduled for the 25th-26th.

Economist Mericle noted that the spread of the new COVID-19 variant Omicron is fueling inflation, which could prompt the Fed to raise interest rates at a faster pace. He said, "Until the inflation trend changes, each FOMC meeting will carry the risk of wanting to implement tightening measures," and mentioned the possibility of an early balance sheet reduction to shrink asset holdings in May. This forecast is two months earlier than Goldman Sachs’ original expectation of July.

Currently, the market expects rate hikes to begin in earnest from March, with no significant actions anticipated at this month’s FOMC. According to the Chicago Mercantile Exchange Group (CME Group) FedWatch, the probability that the Fed will raise the benchmark interest rate in March is 95%. If this happens, it will be the first rate hike since December 2018. The forecast that four rate hikes will occur this year exceeds 85%.

However, recently, the market has also been giving weight to the possibility of five rate hikes, CNBC reported. The outlet stated, "The trend has shifted toward five hikes this year," and noted that the probability of five rate hikes according to FedWatch is approaching 60%. The Fed is also expected to provide more hints regarding quantitative tightening at this month’s FOMC.

Earlier, Jamie Dimon, Chairman of JP Morgan Chase, mentioned that the Fed could raise rates six to seven times this year. Larry Fink, Chairman of BlackRock, the world’s largest asset management firm, also said, "Inflation will worsen further," and "The Fed will take stronger (rate hike) measures."