Analysts at Goldman Sachs are calling for an increasing pace of rate hikes from the US Federal Reserve, with potential to see the number rise as the hawkish central bank battles rising inflation within the US.
Key highlights
GS analysts have noted three key takeaways from the US Fed’s historical rate path looking forward:
An accelerating rate of fiscal tightening would require a “meaningful” overshoot of inflation measures, with a stronger case being made if wage growth begins to ramp up.
A labor market overshoot coupled with a mid-cycle pause reduced inflation expectations at least once historically, but conditions are currently far off from this scenario.
Previous rate hike cycles have either ended with a) growth near maximum potential and restrictive policy already in place, or b) growth already back below maximum potential and ‘neutral stance’ policies already in effect; both cases have the Fed already convinced that labour market overshoots were either over or not going any further.
“We continue to expect five more rate hikes through the end of 2019, with risks to the upside. Chairman Powell’s comments and the lessons from past cycles suggest that this risk could take the form of either a faster pace of hiking if inflation surprises to the upside or a longer hiking cycle if growth and the labor market remain stronger than we expect in 2020.” – Goldman Sachs
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