Goldman Sachs and Bank of America said they expect the Federal Reserve to boost rates of interest three more times this yr, lifting their estimates after data pointed to persistent inflation and a resilient labor market.
Producer prices accelerated in January by the most important margin in seven months, based on data on Thursday, while a Labor Department report showed the variety of Americans filing recent claims for unemployment advantages unexpectedly fell last week.
“In light of the stronger growth and firmer inflation news, we’re adding a 25bp (basis points) rate hike in June to our Fed forecast, for a peak funds rate of 5.25%-5.5%,” Goldman Sachs economists led by Jan Hatzius said in a note dated Thursday.
Meanwhile, money markets are currently pricing in a terminal rate of 5.3% by July.
BofA Global Research also expects a 25bps hike within the Fed’s June meeting, pushing the terminal rate as much as a 5.25%-5.5% range.
It had earlier penciled in two rate hikes of 25 bps each within the March and May meetings.
Goldman Sachs previously penciled in two quarter-point rate hikes.REUTERS
“Resurgent inflation and solid employment gains mean the risks to this (only two rate of interest hikes) outlook are too one-sided for our liking,” BofA wrote in a client note.
After the recent US data, European investment bank UBS said it was expecting the Fed to boost rates by 25 bps at its March and May meetings, which can leave the Fed funds rate on the 5%-5.25% range.
In sharp contrast to its US peers, nonetheless, UBS estimated that the Fed would ease rates of interest on the September meeting this yr.
Jerome Powell is the chairman of the Federal Reserve.REUTERS
Before the recent US data, JP Morgan had forecast the terminal rate at 5.1% by the top of June.
A majority of economists polled by Reuters before the newest data said they expected the Fed to boost rates no less than twice more in the approaching months, with the danger of them going higher still. None of them predict a rate cut this yr.
