Goldman Sachs steepens U.S. rates outlook

Goldman Sachs expects a steeper path for U.S. rate rises and a 75 basis point hike this month, as Federal Reserve officials have been sounding hawkish recently, the investment bank’s analysts said in a note.

They had previously forecast a 50 bps hike in September.

The analysts also raised their November forecast from 25 bps to 50 bps and see the Fed Funds rate window at 3.75-4% by year’s end.

“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,” said the analysts, led by economist Jan Hatzius, in the note published late on Wednesday.

“How the drag from tighter financial conditions will net out with other key growth impulses in 2023 is more uncertain, and we could imagine the hiking cycle extending beyond this year.”

Fed funds futures imply about a 77% chance of a 75 bps hike at the September policy meeting and a peak in the benchmark rate of around 4% in early 2023.