According to Bloomberg News, the Federal Reserve will most probably increase interest rates four times in the current year. The process of balance sheet runoff will likely start in July, might be earlier as well, as being cited by Goldman Sachs Group Inc.
From what is being referred to as hawkish signals emanating from the Federal Open Market Committee minutes of December 14th-15th, coupled with rapid progress in the labor market in the United States, it is being implied that there might be quicker normalization, Jan Hatzius of Goldman stated in his research note.
Jan Hatzius said they are pulling forward their runoff from December through July, with the risks being too much earlier. Jan also stated that they continue to expect hikes in March, June, and September and now have their eyes set on December.
Bloomberg News says that in the meeting minutes of December, the Federal officials indicated that preparations are on to move quicker in comparison to the last time, when they tightened monetary policy, to prevent the US economy from going haywire amidst almost full employment and high inflation. Such a situation coupled with a larger balance sheet that has suppressed borrowing costs on a longer term would warrant a comparatively rapid pace of policy rate normalization, as per the minutes of the meetings.
The officials witnessed the reducing time of the $8.8 trillion balance sheet is likely that it is close to the liftoff of the policy rate than in earlier committee’s experience as per the meeting minutes.
The employment rate in the United States dropped below 4%, and there was a jump in the wages last month that added to the evidence that the labor market is tight at present. The forecast of Goldman related to the terminal rate funds stays the same at 2.5% to 2.75%.
Hatzius also said that even if there are four hikes, their path for funding rate is just slightly above 2022’s market pricing. However, the gap is seen to grow significantly in subsequent years.
