Goldman, Barclays, SG raise Fed rate expectations

Goldman, Barclays, SG raise Fed rate expectations

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SINGAPORE (Reuters) – Goldman Sachs (NYSE:) , Barclays (LON πŸ™‚ A group of investment banks raised their estimates of US policy rates on Thursday, following the Federal Reserve’s 75 basis point interest rate hike and the upbeat message the day before.

“The FOMC is prepared to tolerate further deterioration in the labor market if necessary if inflation remains elevated,” Goldman said in his note.

Goldman analysts also said they had expected a nod toward a slower pace of tightening in November, and revised their forecasts for rate hikes to 75 basis points in November, 50 basis points in December and 25 basis points in February, to peak. The interest rate on funds is 4.5-4.75%, compared to 4-4.25% previously.

Federal Reserve Chairman Jerome Powell pledged on Wednesday that he and fellow policymakers will “continue” their battle to beat inflation, along with a new set of realistic expectations that expect the rate of policy to rise faster and to a higher level than expected, and the economy is slowing to a crawl. Unemployment is rising to a degree historically associated with recession.

Expectations are for another 1.25 percentage point in rate hikes by the end of the year at the fed funds rate, which is currently in the 3.00-3.25% target range.

“The committee is strongly committed to bringing inflation back to its 2% target,” the central bank’s FOMC said in its policy statement after the two-day policy meeting ended.

Goldman said the Fed’s point chart also showed a median forecast of 175 basis points for total rate cuts in 2024 and 2025, but they “won’t put too much weight on that.”

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β€œIn our view, if raising interest rates resolves the inflation problem without stagnation, the FOMC is more likely to wait until something goes wrong to lower it rather than just lower it in order to get back to neutral.”

Analysts at Barclays Research revised their rate call to 75 basis points in November from the previous 50, and a further 50 basis point increase in December versus a previous forecast of 25 basis points.

“This will raise the target range for the Fed’s end-of-year funds to 4.25-4.50%,” they wrote.

Barclays expects to raise rates by another 25 basis points at the February 2023 meeting, pushing the target range into a cycle peak of 4.50-4.75%, but later cutting the rate in 2023.

Economists at Societe Generale (OTC:) expect a similar rise of 75 basis points in November and 50 basis points in December.

“We expect a mild recession in early 2024. The FOMC move increases conviction, and the risk is a possible early recession,” they said.

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