Goldman Sees Fed Hiking 50 Basis Points at May and June Meetings

(Bloomberg) -- Goldman Sachs Group Inc.’s economists now expect the Federal Reserve to raise interest rates by 50 basis points at both its May and June policy meetings.

Economists led by Jan Hatzius said the Fed will likely raise by 25 basis points in the four remaining meetings in the second half of the year, with three quarterly hikes in the first nine months of 2023. 

The change of forecast by Goldman follows a speech and comments Monday by Fed Chair Jerome Powell that the central bank is prepared to raise interest rates by a half percentage-point at its next meeting if needed, deploying a more aggressive tone toward curbing inflation than he used just a few days earlier.

Fed policy makers raised the benchmark lending rate by a quarter point at their meeting last week -- ending two years of near-zero borrowing costs -- and signaled six more hikes of that magnitude this year, based on the median projection. Powell indicated that half-point hikes may be on the table when policy makers next gather May 3-4 and at subsequent sessions.

Powell’s language in his speech and remarks was a clear hawkish signal, according to Goldman’s economists.

“Our best guess is that the shift in wording from ‘steadily’ in January to ‘expeditiously’ today is a signal that a 50 basis points rate hike is coming,” they wrote.

“The Russian invasion of Ukraine and the possibility that financial conditions could tighten more aggressively in response to a faster pace of Fed tightening both present downside risks to our new forecast,” according to the Goldman economists, while adding that neither looks like an obstacle at this point.

Goldman’s terminal rate forecast is unchanged at 3%-3.25%, with the start of balance sheet reduction to be announced in May.

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