After Thursday’s explosive U.S. inflation report, many experts predicted the Federal Reserve would raise rates more aggressively than they previously anticipated.
Goldman Sachs is part of the club, with its economists, led by Jan Hatzius, predicting seven rate hikes this year -- 0.25 percentage point at each of the Fed’s remaining meetings this year.
That’s up from the five rate increases they previously expected.
Consumer prices soared 7.5% in the 12 months through January, the biggest climb in almost 40 years.
Inflation Surge Sparks Aggressive Bets on Emergency Fed Rate Hikes
“The January CPI report … was very firm, with every key measure of the underlying trend running hot last month,” the Goldman economists wrote in a commentary.
“This follows a strong average hourly earnings print in the January employment report last week that added to the evidence that wage growth is running hot too.”
Average hourly earnings surged 5.7% in the 12 months through January.
Inflation Hits Small Businesses and 61% Raise Their Prices
To be sure, while interest-rate futures traders see a 62% probability of a 0.5-percentage-point increase by the Fed next month, Goldman economists disagree.
Though St. Louis Fed President James Bullard voiced support for such a move, “most Fed officials who have commented have opposed a 50-basis-point hike in March,” the economists wrote. “We therefore think that the more likely path is a longer series of 25-basis-points hikes.”
Still, the economists said a case can be made for half a point. “We would consider changing our forecast if other participants join him, especially if the market continues to price high odds of a 50-basis-points move in March,” they said.
