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November 02, 2021 at 02:40 PM
What You Need to Know
- Its economists' latest forecast moves up their expectation of a rate increase by a full year due to rising inflation.
- The rate increase would follow completion of a Fed program to taper asset purchases.
- Goldman Sachs economists expect the Fed will announce the start of its tapering on Wednesday, Nov. 3.
Ahead of the Federal Reserve’s expected announcement Wednesday to start tapering bond purchases, Goldman Sachs has moved up expectations for the Fed’s first interest rate increase to July 2022, a full year earlier than previously forecast.
According to a recent economic analysis from the investment bank, Goldman Sachs economists, led by Chief Economist Jan Hatzius, now expect the Fed will raise rates for the first time since December 2018 once it completes its asset purchase tapering in June. Two more increases per year are expected to follow.
Like many other financial firms, Goldman Sachs expects the Fed will announce the start of its tapering program at the conclusion of Wednesday’s policymaking meeting, “presumably at the $15 billion per month pace noted in the September [Fed] minutes.”
The Fed has been purchasing a total $120 billion worth of Treasury and mortgage-backed securities since June of last year, following even larger purchases in early 2020 to combat the pandemic-fueled economic slowdown.
Goldman Sachs economists changed their timeline for the first Fed rate in years because of rising inflation. “We now expect core PCE [personal consumption expenditures] to remain above 3% — and core CPI [consumer price index] inflation above 4% — when the taper concludes,” according to their recent note. Core inflation refers to inflation minus volatile food and energy prices. Core PCE is the Fed’s favorite inflation indicator.
