Analysts from Goldman Sachs (NYSE:) and Bank of America indicated that they expect the US Federal Reserve to raise interest rates three more times this year, and raised their estimates following data indicated persistent inflation and a strong labor market.
Producer prices rose in January by the largest margin in seven months, according to Thursday’s data, while a Labor Department report showed that the number of Americans filing new claims for unemployment benefits fell unexpectedly last week.
“In light of stronger growth and firmer inflation news, we are adding a 25 basis point (bp) rate hike in June to our Fed forecast, to reach a peak money rate of 5.25%-5.5%,” according to economists at Goldman Sachs, led by Jan Hatzius. he said in a note dated Thursday.
Meanwhile, money markets are currently pricing in a final rate of 5.3% by July.
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Bank of America (NYSE:) also expects a 25 basis point hike at the June Fed meeting, pushing the final interest rate to a range of 5.25%-5.5%.
He had earlier forecast two price increases of 25 basis points each in the March and May meetings.
“Rising inflation and strong employment gains mean that risks from this (only two interest rate hikes) are less than we expected,” Bank of America wrote in a note to a client.
After the latest US data, European investment bank UBS said it expects the Fed to raise interest rates by 25 basis points at the March-May meetings, which might leave the federal funds rate at a range of 5%-5.25%.
However, in sharp contrast to its US counterparts, UBS estimated that the Fed will cut interest rates at its September meeting this year.
Ahead of the latest US data, JPMorgan (NYSE:) expected the final interest rate at 5.1% by the end of June.
The majority of economists polled by Archyde.com ahead of the latest data said they expected the Fed to raise interest rates at least twice in the coming months, with the risk of them still rising. None of them expect a rate cut this year.
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