Goldman Sachs and Bank of America Expect 3 More Fed Rate Hikes This Year

Siddarth S and Aniruddha Gosh

(Reuters) – Goldman Sachs, Bank of America and Bank of America stated that they expect the U.S. Federal Reserve will raise interest rates three times more this year. This is after data showed persistent inflation and a resilient labor force market.

According to Thursday’s data, producer prices increased in January by the largest margin in seven month, while Labor Department reports showed that the number of Americans filing for unemployment benefits claims unexpectedly dropped last week.

“In light of the stronger growth and firmer inflation news, we are adding a 25bp (basis points) rate hike in June to our Fed forecast, for a peak funds rate of 5.25%-5.5%,” Jan Hatzius, an economist at Goldman Sachs, said this in a note dated Thursday.

In the meantime, money markets are pricing in a terminal interest rate of 5.3% by July.

BofA Global Research anticipates a 25bps Fed meeting hike, pushing the terminal rates up to a 5.25-5.5% range.

It had previously planned two rate increases of 25 bps each for the March and May meetings.

“Resurgent inflation and solid employment gains mean the risks to this (only two interest rate hikes) outlook are too one-sided for our liking,” BofA sent a client note.

UBS, an European investment bank, said that it expects the Fed will raise rates by 25bps at its March or May meetings. This may result in the Fed funds interest rate remaining within the 5%-5.25% range.

UBS, in stark contrast to its American peers, estimated that the Fed would lower interest rates at the September meeting of this year.

J.P. Morgan had predicted the terminal rate at 5.1% before the U.S. data.

Reuters polled a majority of economists before the release of the latest data and they predicted that the Fed would raise rates at least twice as much in the next few months. There is also the possibility of them going higher. None of them anticipate a rate cut in the coming year.

(Reporting by Aniruddha Ghosh, Siddarth S in Bengaluru; Editing done by Savio Da’Souza and Anil D’Silva; Devika Syamnath).

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