Federal Reserve set to hike rates 4 times in 2022

The Federal Reserve is expected to raise interest rates more than expected in 2022 as the U.S. economy grapples with soaring inflation and tough working conditions, Goldman Sachs analysts said in a note to investors on Sunday.

The Bank of Wall Street said it now expects four rate hikes, down from three in its previous projections. In addition, Goldman Sachs predicts that the Fed will begin to reduce the size of its balance sheet as early as July, reducing its holdings of nearly $ 9 trillion in bonds.

“The weaker labor market slowdown has made Fed officials more sensitive to the risks of upward inflation and less sensitive to the risks of downward growth,” said Goldman Sachs chief economist Jan Hatzius, according to CNBC. “We continue to see increases in March, June and September, and have now added an increase in December for a total of four in 2022.”

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Goldman revised its outlook just days before the Bureau of Labor Statistics released updated data for the Consumer Price Index, a key indicator of inflation. The consumer price index is expected to post a 7.1% year-over-year increase when data for December is released on Wednesday, according to Dow Jones.

This figure would mark the largest annual peak in four decades.

A rate hike would be the Federal Reserve’s first since the pandemic began in March 2020.

Andrew Harnik/AP

So far, Federal Reserve officials have indicated they plan to hike interest rates three times in 2022. The central bank’s plan to tighten monetary policy, following months of policy adoption aimed at supporting the U.S. economy during COVID-19, has scared investors of late. days.

A rate hike would be the Fed’s first since the pandemic began in March 2020. The current fed funds rate is 0% to 0.25%.

The minutes of the Federal Reserve’s FOMC meeting in December indicated that officials may raise interest rates faster than expected this year due to difficult working conditions. The December jobs report showed an employment rate of just 3.9%, in line with what the Fed considers “maximum employment”.

Goldman Sachs predicts that the Fed will also begin to reduce its holdings of nearly $ 9 trillion in bonds as early as July.

Andrew Kelly/REUTERS

Deutsche Bank is also forecasting four rate hikes in 2022, citing data from the latest jobs report, according to Archyde.com.

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