Goldman Sachs, BofA See Fed Extending Rate Hikes Into June

In an article written for Bloomberg, Jonnelle Marte comments on Federal Funds Rate expectations from Bank of America and Goldman Sachs.

        • Jobs revisions point to stronger labor market momentum
        • Changes follow stronger inflation and employment data

Bank of America Corp. and Goldman Sachs Group Inc. economists now see the Federal Reserve extending its interest-rate hiking campaign for longer than expected on the heels of stronger economic data.

While some of the strength may be due in part to seasonal adjustments, it is “hard to ignore” employment data that point to stronger labor market momentum, Bank of America economists led by Michael Gapen said in a Feb. 16 note. The team is now forecasting a 25 basis-point increase in June and a terminal fed funds rate of 5.25% to 5.5%, compared to previous expectations that rate increases would end in May and peak at a range of 5% to 5.25%.

Investors are upping their bets that the Fed will lift rates higher, and quarter-point rate increases are now fully priced in for each of the central bank’s next two meetings in March and May. Markets are now pricing in a 70% chance that the Fed will roll out a third quarter-point hike in June.

Goldman Sachs economists on Thursday also revised their call to include a third rate increase in June of 25 basis points, citing “stronger growth and firmer inflation news.” Economic reports released this week showed stronger-than-expected inflation and robust retail sales. The US central bank aggressively lifted its benchmark interest rate from near zero levels in March 2022 to a target range of 4.5% to 4.75% reached earlier this month. Two hawkish Fed officials said Thursday they saw the case for raising rates by 50 basis points at the meeting that ended Feb. 1, and that they think larger increments should be on the table for future meetings (Marte).

By Jonnelle Marte
February 17, 2023 at 7:03 AM PST
Courtesy of Bloomberg
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