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Inflation could lead Fed to hike rates more than 4 times in 2022: Goldman Sachs

By
Thomas Barrabi
Published Jan. 24, 2022
Updated Jan. 24, 2022, 9:41 a.m. ET

The Federal Reserve could hike interest rates more times than expected this year as it aims to curtail the ongoing inflation surge, according to analysts at Goldman Sachs.

Goldman’s current projections call for four rate hikes in 2022, with hikes coming in March, June, September and December. But with inflation at a four-decade high, the central bank could adopt an even more hawkish policy stance, analysts said in a note to clients over the weekend.

“We see a risk that the [Federal Open Markets Committee] will want to take some tightening action at every meeting until that picture changes,” the Goldman Sachs analysts said. “This raises the possibility of a hike, or an earlier balance sheet announcement in May, and of more than four hikes this year.”

The Fed is set to tighten monetary policy in the coming months, with efforts to include rate hikes and trimming of the central bank’s nearly $9 trillion in bond holdings. The central bank’s last rate hike occurred in December 2019, months before the COVID-19 pandemic began.

A Goldman Sachs logo
Analysts at Goldman Sachs said the Federal Reserve could hike interest rates more times than expected this year. Ramin Talaie/Corbis via Getty Images

In their analysis, the Goldman Sachs economists noted various conditions contributing to a high inflation, including imbalances between supply and demand, strong wage growth and higher rent prices.

“We also increasingly see a good chance that the FOMC will want to deliver some tightening action at its May meeting, when the inflation dashboard is likely to remain quite hot,” the Goldman note said. “If so, that could ultimately lead to more than four rate hikes this year.”

Jerome H. Powell, Chair of the Board of Governors of the Federal Reserve, arrives on Capitol Hill for a confirmation hearing before the Senate Banking, Housing and Urban Affairs Committee on January 11, 2022 in Washington, DC.
Fed Chair Jerome Powell acknowledged the likelihood of several rate hikes. Graeme Jennings-Pool/Getty Images

The Fed will meet on Tuesday and Wednesday this week to assess policy. Fears of rate hikes have contributed to instability on US stock indices, with the market recording its worst week since March 2020 last week.

The Federal Reserve building is pictured in Washington, DC, on January 22, 2022.
The Fed is set to tighten monetary policy in the coming months. STEFANI REYNOLDS/AFP via Getty Images

Fed Chair Jerome Powell acknowledged the likelihood of several rate hikes earlier this month during his re-nomination hearing before a Senate committee.

“If we see inflation persisting at high levels longer than expected, if we have to raise interest rates more over time, we will,” Powell said. “We will use our tools to get inflation back.”