Goldman Sachs (NYSE:GS) has upgraded the number of interest rate rises it expects from the Federal Reserve for 2022 to seven, up from five previously.
The broker anticipates the Fed to announce consecutive 0.25% rate hikes increase in each remaining Federal Open Market Committee (FOMC) meeting of 2022 in an attempt to cool down an overheating economy.
Goldman Sachs (NYSE:GS) then expects three more rate hikes in the first three quarters of 2023, towards a final rate of 2.5% - 2.75%, indicating the same target as previously announced, but achieved at an earlier date.
The increased hawkishness from the broker follows the latest US CPI report which put inflation at 7.5% in January, the largest price rise since 1982 for the second consecutive month.
It said that figure, in line with hot wage growth and high short-term inflation expectations, meant the risk of the US falling into a 70s-style wage-price spiral deserved to be taken seriously.
The US 10-year debt yield breached 2% following the release of inflation figures, while average wages in the US increased by nearly 7% in the 12 months to January 2022.
The New York Fed’s survey of consumers indicated they expect inflation to be 6% next year.
The Federal Reserve Bank of St Louis’ president James Bullard yesterday became the first member of the FOMC to call for a 0.5% rate hike in March to show markets they were serious about bringing prices down.
Goldman Sachs (NYSE:GS) held off on suggesting a 0.5% increase was likely but softened their stance to say that could change if other members followed suit, particularly as markets begin to price in such a rise.