Some Wall Street banks expect four U.S. rate hikes this year

© Reuters. FILE PHOTO: A Goldman Sachs logo is seen on the trading floor of the New York Stock Exchange (NYSE) in New York City, U.S., November 17, 2021.REUTERS/Andrew Kelly

(Reuters) – Goldman Sachs expects the Federal Reserve to raise interest rates four times this year and begin shrinking its balance sheet as early as July, joining other big banks in forecasting a sharp tightening of U.S. monetary policy.

Wall Street banks had earlier forecast that the Fed would hike rates in March, June and September, but now expect another hike in December.

Goldman Sachs’ (NYSE: ) forecast rate was only marginally higher than the market’s forecast for 2022, “but the gap widened significantly in subsequent years,” chief economist Jan Hatzius said in a note on Sunday. wrote.

Federal Reserve officials said last month that the U.S. labor market was “very tight” and that the central bank may need to raise interest rates sooner than expected, but also to reduce overall asset holdings to curb high inflation, minutes of last week’s December meeting showed. That prompted traders to price in about an 80 percent chance of a rate hike in March.

JPMorgan on Friday brought forward its forecast for the first rate hike since the pandemic began in June through March, and expects to raise rates every quarter this year.

“We believe Fed officials have come to the same conclusion that the labor market is very tight, making it difficult to delay the first rate hike beyond our previous expectations,” the bank’s chief U.S. economist Michael Feroli said in a note. wrote. .

Deutsche Bank (DE:) also said on Friday that the Federal Reserve is expected to raise interest rates a total of four times this year after December jobs data, missing market expectations but indicating more progress towards maximizing employment. The German bank expects the Fed’s balance sheet runoff to begin in the third quarter.

San Francisco Fed President Mary Daly, who is not a voter this year, said on Friday that after a rate hike or two, she could see the central bank shrink by more than $8 trillion from its balance sheet.

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