Thursday, January 20, 2022

    Latest Posts

    Goldman predicts that the Fed will raise rates four times this year, more than previously expected.

    Federal Reserve Chair Jerome Powell testifies at a hearing entitled Pandemic Response Oversight of the Treasury and the Federal Reserve Board in Leyburnville on Wednesday, December 1, 2021.

    Tom Williams | CQ-Roll Call, Inc. Getty Images

    Goldman Sachs’ latest forecasts show that the Federal Reserve will raise interest rates more than expected this year, coupled with sustained high inflation and a near-full employment labor market.

    Wall Street chief economist Jan Hatzius said in a note on Sunday that the Fed expects to raise rates by a quarter percent in 2022. Signs of a central bank just a month ago.. The Fed’s benchmark overnight borrowing rate is currently fixed in the range 0% to 0.25%. Recently about 0.08%..

    “The declining labor market downturn has made Fed officials less sensitive to upward inflation risk and less sensitive to downward growth risk,” Hatzius wrote. “Hikes continued in March, June and September, with a total of four additional hikes in December 2022.”

    Goldman had previously predicted three rate hikes, in line with the levels written by Fed officials in pencil following the December meeting.

    The company’s outlook for the more hawkish Fed is expected to rise at the fastest pace in nearly 40 years, just days earlier than this week’s major inflation measurements. If the Dow Jones consumer price index growth of 7.1% year-on-year in December is correct, it will be the sharpest rise since June 1982. The numbers will be announced on Wednesday.

    At the same time, Hatzius and other economists do not expect the Fed to be deterred by slowing job growth.

    Number of non-farm payrolls Salary increased by 199,000 in DecemberThe second month of the report, well below the 422,000 estimate and well below the consensus. However, the unemployment rate fell to 3.9% when jobs far exceeded those looking for a job, reflecting the rapid tightening of the employment market.

    With these convergence factors, the Fed not only raises interest rates by full percentage points, or 100 basis points, this year, Hatzius said. Start shrinking $ 8.8 trillion balance sheet size.. He specifically pointed out a statement by Fed President Mary Daly last week. He said he could see the Fed starting to shed assets after the first or second rate hike.

    “Therefore, the risks are leaning even faster, moving ahead of the spill forecast from December to July,” Hatzius wrote. “At that point, inflation is probably still well above target, so we no longer think that the start of the outflow will replace quarterly rate hikes.”

    Until a few months ago, the Fed bought $ 120 billion a month in government bonds and mortgage-backed securities. As of January Those purchases are sliced ​​in half It may be completely phased out in March.

    Asset purchases kept interest rates low, kept financial markets running smoothly, and supported a nearly 27% rise in the S & P 500 in 2021.

    The Fed is most likely to enable a passive outflow of its balance sheet by allowing it to roll off a portion of its maturity bond returns while reinvesting each month. This process is called “quantitative easing” and is the opposite of the quantitative easing used to account for the massive balance sheet expansion over the last two years.

    Goldman’s forecasts are in line with market prices, according to CME, with a rate hike of nearly 80% in the first pandemic era in March and a fourth rise close to 50-50 by December. I am. FedWatch tool.. Federal Reserve futures market traders see a non-negligible 22.7% chance of a fifth rise this year.

    Still, in the market, fund rates have only risen to 2.04% by the end of 2026, below the 2.5% high reached in the last tightening cycle that ended in 2018.

    The market is reacting to the Fed’s tightening prospects as government bond yields skyrocket. The benchmark 10-year government bond was about 1.77% most recently, about 30 basis points higher than it was a month ago.

    Goldman predicts that the Fed will raise rates four times this year, more than previously expected.

    Source link Goldman predicts that the Fed will raise rates four times this year, more than previously expected.

    The post Goldman predicts that the Fed will raise rates four times this year, more than previously expected. appeared first on Eminetra.

    Latest Posts

    Don't Miss

    Stay in touch

    To be updated with all the latest news, offers and special announcements.