Jan Hatzius the chief economist and the Head of the Global Investment Research Division at Goldman Sachs expects the Federal Reserve to increase the repo rates to 7 times in 2022 to manage the flaring U.S. inflation, a switch from the previous 5 hikes they had experienced.
The switch comes after the U.S. consumer price index report for January showed a 7.5% annual profit, a massive gain since 1982. These gains were from different sectors going beyond food and energy to health insurance and household furnishings.
Hatzius and his team of economists were indicating that the Fed will go by 25 basis points at the Federal Open Market Committee’s 7 back-to-back meetings.
Given the scenarios of a mixture of sky-high inflation, hot wage growth and high short-term inflation expectation, there is a possibility for a 50 basis points hike in March. Policymakers are indicating a more incremental move, as per Goldman Sachs analysts.
In a detailed report the Goldman analysts wrote, ” Most Fed officials who have commented have opposed a 50 basis points hike in March. We, therefore, think that the more likely path is a long series of 25 basis points hike instead.”
James Bullard is the President of the Federal Reserve Bank of St. Louis and he responded that he supports the increasing repo rates by 100% point at the beginning of July 2022; this came in as a response to the highest inflation in 40 years.
Soon after James Bullard’s response, the Goldman Sachs analysts said, ” 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.”
