Goldman Sachs stated that the firm had raised the Fed forecast to include a 75bp rate hike in September 2022, up from the previous forecast for a 50bp hike, and a 50bp hike in November, up from previous forecast of 25bp.
Terminal interest rate by the end of 2022 would be 3.75-4% after another 25bp rate hike in December.
To emphasize its hawkish view on the Fed funds rate, Goldman Sachs said that at the July FOMC meeting, Fed chair Jerome Powell laid out a case for slowing the pace of tightening. Since then, the data have come in roughly as ex[ected or even a bit more supportive than expected of the case for slowing down.
However, Goldman Sachs noted that Fed officials have sounded hawkish recently and have seemed to imply that progress toward taming inflation has not been as uniform or as rapid as they would like.
In addition, the market is now pricing roughly a 75bp/50bp and 25bp hike for the next three meetings this year. The firm stated that how the drag from tighter financial conditions will net out with other key growth impulses in 2023 is more uncertain. Goldman said that it could imagine the hiking cycle extending beyond 2022.