Goldman and Bank of America expand forecasts for further Fed rate hikes

Goldman Sachs and Bank of America said they expect the Federal Reserve to raise interest rates three more times this year, raising their estimates after data indicated robust inflation and a robust labor market.

Producer prices rose by the largest margin in seven months in January, according to data released Thursday, while a Labor Department report showed the number of Americans filing new jobless claims dropped unexpectedly last week.

“In light of stronger growth and more robust inflation news, we are adding a 25 bp rate hike to our Fed forecast. said in a note dated Thursday.

Meanwhile, money markets are now pricing a cap rate of 5.3% for July.

BofA Global Research also expects a 25 basis point rate hike at the Fed’s June meeting, which would raise the final rate to the 5.25-5.5% range.

Previously, he twice raised rates by 25 basis points in the March and May meetings.


Goldman Sachs logo
Previously, Goldman Sachs twice raised interest rates by a quarter point.
REUTERS

“A resurgence in inflation and robust employment growth means the risks to this (just two interest rate hikes) outlook are too one-sided in our view,” BofA wrote in a note to clients.

Following recent US data, European investment bank UBS said it expects a 25 basis point rate hike from the Fed at its March and May meetings, which could leave the Fed funds rate in the 5%-5.25% range.

However, unlike its US counterparts, UBS has calculated that the Fed will cut interest rates at its September meeting this year.


Fed Chairman Jerome Powell
Jerome Powell is Chairman of the Federal Reserve.
REUTERS

Prior to recent US data, JP Morgan had forecast a terminal rate of 5.1% by the end of June.

Most economists polled by Reuters prior to the release of the latest data said they expect the Fed to at least double rates further in the coming months, with the risk of further hikes. None of them expects a rate cut this year.

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texasstandard.news contributed to this report.

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