- In total, the Federal Reserve could raise rates by another 75 basis points this year, according to Goldman Sachs.
- The bank’s chief economist suggested the Fed could raise rates at its March, May and June meetings to beat inflation.
- Further rate hikes could destabilize investors and limit the rally in U.S. stocks this year.
The Federal Reserve could raise interest rates three times this year to keep inflation in check, which could increase pressure on stocks, according to Goldman Sachs chief economist.
Goldman’s Jan Hatzius told Bloomberg He expects the Fed to raise interest rates by 25 basis points at its March, May and June meetings. The US central bank may be concerned that the economy is on the verge of overheating, he said.
“Recent figures have been better than expected on the growth side, and January inflation has also risen,” Hatzius said.
“This reinforces the idea that the Fed still has work to do. So a further 75 basis points cut from here, with no rate cuts until 2024, seems like the more likely outcome. I think.”
Also Head of Global Investment Research for Banks
US inflation rate 6.4% increase Annualized basis for January. Inflation pressures have eased since mid-2022, but inflation is still well above the Fed’s 2% target.
Inflation remains stubbornly high despite the Fed’s historically fast pace of rate hikes. It has raised interest rates from near zero to nearly 5% over the past year, indicating that it expects to raise them further in the coming months.
Hatzius, who also heads global investment research at Goldman Sachs, stands in stark contrast to market expectations of the Fed moving forward.
Most investors expect the US central bank to ease its tight monetary policy or start cutting interest rates this year as inflation falls. But with retail sales and employment numbers soaring and unemployment falling, the Fed may decide it needs to keep raising interest rates.
Higher interest rates tend to encourage saving over spending, making borrowing more expensive, and easing upward pressure on prices. But they can also sap demand, slow economic growth, and depress stocks and other assets.
On the risk of a recession, Hatzius said Goldman sees only a 25% chance of a prolonged recession. The US economy is still on a soft-landing trajectory, but it risks being too strong and triggering further inflation, he added.
“The narrow road basically means there are risks on both sides. Either the economy is too slow and we are in recession, or the economy is too strong and inflation is not going down,” Hatzius said.
“I think we’re still on that narrow path, but at the moment it looks like the risk is a little bit higher on the too strong side than the too weak side,” he added.
