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Wednesday, May 25, 2022

Sticky inflation raises risk of more than 4 Fed rate hikes in 2022: Goldman Sachs

Analysts at Goldman Sachs said in a weekend report that persistently high inflation raises the risk that the Federal Reserve will move towards more aggressive monetary tightening, with the Wall Street giant seeing a growing likelihood of more than four interest rate hikes in this year.

The Fed’s latest scatter chart of policymakers’ views on the path for future rate hikes, released as part of the Central Bank’s Revised December Summary of Economic Forecasts (pdf), projects a three-quarter-point rate hike in 2022. will place a target federal funds rate in the range of 0.75 to 1.0 percent by the end of the year.

But Goldman economist David Merikle wrote in a note cited by Seeking Alpha that sticky inflation would force the Fed to move to a more rapid tightening of the schedule currently being drafted by members of the Fed’s policy-making body, the Federal Open Market Committee (FOMC).

“We see the risk that the FOMC will want to do some tightening at every meeting until the inflation picture changes,” Merikl wrote. “We are also increasingly seeing a good chance that the FOMC will want to take some tightening action at its May meeting when the inflation indicator is likely to remain fairly hot. If so, it could eventually lead to more than four rate hikes this year.”

Five 25 basis point rate hikes by the end of the year would put federal funds earmarked in the 1.25 to 1.5 percent range. The base interest rate currently ranges from zero to 0.25 percent.

Goldman’s outlook is ahead of the next FOMC policy meeting on January 25-26.

Rising prices forced the Fed to accelerate policy normalization. Inflation in the United States rose 7.0 percent in the 12 months to December, a level not seen since June 1982, when it hit 7.2 percent.

“It’s not a lucky number 7,” Greg McBride, chief financial analyst at Bankrate, told The Epoch Times in an emailed statement, in which he noted that the rate of inflation “far outpaces most Americans’ wage growth and reduces the purchasing power of the population.” households.”

A recent government report showed that inflation-adjusted real average hourly earnings fell 2.4 percent in the 12 months to December.

The recently released minutes of the Fed’s December policy meeting (pdf), along with tight inflation and the ongoing recovery in the labor market, point to a faster path for monetary tightening.

The minutes of the Fed meeting show that FOMC members felt that current economic conditions “include a stronger economic outlook, higher inflation and a larger balance sheet and thus could warrant a potentially faster pace of policy rate normalization.”

The minutes also indicated that Fed officials said they could speed up the process of cutting the central bank’s balance sheet by $8.8 trillion.

To follow

Tom Ozimek has extensive experience in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he’s ever heard is from Roy Peter Clark: “Achieve your goal” and “save the best for last.”


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