Goldman Sachs has pushed forward its projection for the first post-pandemic interest rate hike in the US by a year, to July 2022, since the investment bank expects inflation to remain high.
Goldman's chief economist, Jan Hatzius, stated, "The fundamental reason for the change in our liftoff call is that we now estimate core PCE inflation to remain over 3%, and core CPI inflation to remain over 4%, when the taper ends."
At the end of their two-day policy meeting on Wednesday, Federal Reserve policymakers are expected to announce plans to begin tapering the central bank's $120 billion in monthly purchases of Treasuries and mortgage-backed securities.
"We think the hurdle for a change in either direction is high," Hatzius said. "Large surprises on the virus, inflation, wage growth, or inflation expectations could cause an adjustment."
According to Goldman Sachs, a second interest rate hike is expected in November 2022, followed by two rate hikes each year after that.
Fed fund futures have fully priced in a quarter-point tightening by July 2022 and another rate hike by December, following Friday's inflation data.