U.S. Growth Gains Could Result In Fed Four Rate Hike In 2018: Goldman Sachs

Next year, the Federal Reserve would be required to raise rates of bank interest at least four times next year as wages and inflation would be boosted broadly because of the fact that the U.S. economy is going into the new year with a strong momentum. This was revealed in a recent research note by economists at the Goldman Sachs Group Inc.

While lowering the previous forecast on unemployment to 3.7 percent by the end of the year 2018, its outlook for growth of the U.S. economy was raised to 2.5 percent for the entire year of 2017, by the New York-based investment banking and securities firm, said Goldman chief economist Jan Hatzius, a co-author of the note, which was released by email late Friday.

The earlier growth forecast made by Goldman Sachs was that of 2.4 percent for the entire year of 2018 until the latest revision.

Goldman also predicted that in late 2019, the U.S. jobless rate could reach 3.5 percent even as the figure had touched 4.1 percent in October of this year. if Goldman Sachs’ prediction comes true that level of unemployment would be the lowest since the late-1960s.

“Our projections would imply an evolution over the current cycle from the weakest labor market in postwar U.S. history to one of the tightest,” the economists said in a summary of their report. “We expect that a tight labor market and a more normal inflation picture will lead the Fed to deliver four hikes next year.”

That anticipated number of rate increase is more than financial markets are presently ready to bargain for pricing and is one more than what the median forecast of the Fed officials were. “We see little evidence that soft inflation is structural in nature”, was one of the reasons that the economists of Goldman Sachs said they disagree with market expectations.

Goldman projected that by the end of 2018, core inflation should rise by about a half percentage point to 1.8 percent as the figure is expected to accelerate in 2018.

The final Federal Open Market Committee meeting for the year is to be held in December and the trend in the futures trading indicates that there is another quarter percentage-point increase likely again at that meeting, even though, since December of 2015, the target range for the federal funds rate has been raised four times by the Fed itself.

The Goldman economists wrote that the chances for a likely recession for the largest economy of the world are still fairly limited. “But the strength is becoming ‘too much of a good thing’ and containing further overheating will become a more urgent priority in 2018 and beyond.”

(Adapted from Bloomberg)

Categories: Economy & Finance, Strategy

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