Goldman Sachs Now Calls for 75bp Hikes in June and July After a Hint in WSJ
2022.06.14 13:26
Goldman Sachs Now Calls for 75bp Hikes in June and July After a Hint in WSJ
By Senad Karaahmetovic
Goldman Sachs’ top economist Jan Hatzius now expects the Federal Reserve to deliver two 75bp hikes in June and July.
The change in Goldman Sachs’ base-case scenario comes after the Wall Street Journal reported yesterday that Fed officials are likely “to consider surprising markets with a larger-than-expected 0.75-percentage-point interest rate increase at their meeting this week.”
Hatzius reminds clients that the same author, Nick Timiraos, wrote in a separate WSJ piece that a 75bp rate hike is “unlikely.”
“Our best guess is therefore that the article is a hint from the Fed leadership that a 75bp rate hike is coming at the June FOMC meeting on Wednesday,” Hatzius told clients in a note.
The WSJ piece was followed by a similar article on CNBC, where Senior Economics Reporter Steve Liesman said that the Fed is “entertaining the idea of a 75 basis point increase.”
A 75 basis point move is “a real distinct possibility,” Liesman said on CNBC.
Hatzius says that two consecutive 75bps rate hikes would “quickly reset the level of the funds rate at 2.25-2.5%,” which is the FOMC’s median estimate of the neutral rate.
The bank is also calling for a 50bp hike in September and 25bp hikes in November and December, which should ultimately result in the terminal rate of 3.25-3.5%.
Goldman Sachs’ top economist added that the Fed likely had a change of heart after the red-hot May CPI report as well as the Michigan consumer survey results.
“The additional tightening of financial conditions on Friday and Monday, driven by a rise in terminal rate expectations to about 4%, would imply a meaningful further drag on growth that goes somewhat beyond what we think policymakers intend at this point or should be targeting to have the best chance of bringing down inflation without a recession,” Hatzius concluded.
