How Many Times Will The Fed Raise Rates In 2022? Goldman Sachs Predicts 4

The Federal Reserve is moving in the direction of raising interest rates to fight rising inflation. When it does so, however, is an open question.

Goldman Sachs strategists on Monday laid out several scenarios in which it expects the Fed to go ahead with its plans for a series of rate hikes. The central bank has been vague on when it will begin hiking rates, but the strategists offered four scenarios where they believe the Fed will act.

Chief economist Jan Hatzius said in a note obtained Sunday by CNBC that he figures the Fed will enact four quarter-percentage-point rate hikes in 2022. Hatzius' assertions are based on trends in the labor market that he suspects leave the Fed more sensitive to the upside risks of inflation.

“Declining labor market slack has made Fed officials more sensitive to upside inflation risks and less sensitive to downside growth risks,” Hatzius wrote. “We continue to see hikes in March, June and September, and have now added a hike in December for a total of four in 2022.”

Last month, Fed Chairman Jerome Powell announced that he would pursue interest-rate hikes in 2022, breaking with earlier positions that foresaw rate hikes beginning in 2023. Recently released minutes from the central bank demonstrate that it is feeling the pressure to bring rates higher sooner to curb inflation.

Rates are near zero after the Fed cut rates at the start of the COVID-19 pandemic and embarked on a multibillion-dollar stimulus program through monthly asset purchases.

Hatzius added that he is basing this prediction on an expectation that the Fed will feel compelled to act sooner after the release of key inflation readings this week. These projections have been what drove the Fed to abandon its more cautious approach in the past as each consecutive reading in recent months showed inflation at levels not seen in decades.

The strategist said he does not expect the sluggish job growth seen of late to act as much of a deterrent in raising rates. Together with rising inflation, Hatzius thinks the convergence of these factors will force a full percentage-point hike in rates early in the year.

“We are therefore pulling forward our runoff forecast from December to July, with risks tilted to the even earlier side,” Hatzius wrote. “With inflation probably still far above target at that point, we no longer think that the start to runoff will substitute for a quarterly rate hike.”

Hatzius suspects that the Fed will move to passively end its tapering off of pandemic-era stimulus policies. In November, Powell initiated a phased reduction of asset purchases, but in December announced that this process would be sped up.