Goldman Sachs Now Expects 3 More Fed Rate Hikes in 2023

Goldman Sachs said it was expecting the U.S. Federal Reserve to raise interest rates three more times this year by a quarter of a percentage point each, after data this week pointed to persistent inflation and resilience in the labor market.

Producer prices accelerated in January by the biggest margin in seven months, according to data on Thursday, while a Labor Department report showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week.

"In light of the stronger growth and firmer inflation news, we are adding a 25bp (basis points) rate hike in June to our Fed forecast, for a peak funds rate of 5.25-5.5%," 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.

After the recent U.S. data, European investment bank UBS said it was expecting the central bank to raise rates by 25 bps at its March and May meetings, which may leave the fed funds rate at the 5-5.25% range.

"After that, we expect the FOMC (Federal Open Market Committee) to turn around and begin to cut interest rates at the September FOMC meeting," UBS wrote in a client note.

J.P. Morgan had, before the recent U.S. data, forecast the terminal rate at 5.1% by the end of June, while BofA Global Research had forecast it in the range of 5-5.25% by the end of the year.

BofA had also penciled in two rate hikes of 25 bps each earlier.

A majority of economists polled by Reuters before the latest data said they expected the Fed to raise rates at least twice more in coming months, with the risk they go higher still, although none of them are expecting a rate cut this year.