BIG BANKS REMAIN CONFIDENT OF RATE HIKES
Goldman Sachs Group Inc. and JPMorgan Chase & Co. are sticking with forecasts fortheFederal Reserve to hike interest rates five more times by the end of 2019 even as financialmarkets shudder.In reports released in the past 24 hours as the Standard & Poor’s 500 index tumbledtoward acorrection, economists at the Wall Street giants predicted Chairman Jerome Powell andcolleagues will raise their benchmark interest rate again in December, ultimately reaching3.50percent by the end of next year.“Central banks will deliver more tightening than markets currently anticipate,” the JPMorganeconomists led by Bruce Kasman wrote.
A decline in unemployment to 3.3 percent and an increase in the Fed’s favored measure ofinflation to 2.3 percent will drive the Fed to push up its benchmark from the current level, arange of 2 percent, to 2.25 percent, they said.At Goldman Sachs, Jan Hatzius’s team said there is a 90 percent probability of a Decemberhikeand that risks around the call for four increases in 2019 are “broadly balanced.”While acknowledging the recent selloffin stocks, the Goldman Sachs economists said areviewof market declines since 1994 suggested the Fed only turned accommodative when othermeasures of financial conditions also deteriorated substantially or economic growth fell
below itslong-term trend. As well, the Fed does not want to be seen as caving to Trump.“While credit spreads have widened somewhat recently, growth remains significantly abovepotential today,” Goldman Sachs said.Investors are more doubtful of whether the Fed will be so aggressive. Economists atMorganStanley are among those who only see two hikes in 2019 after the December increase.Bloomberg Economics sees three increases next year.As we all know, what the Fed does matters to everyone, as the rates they set determineinterestrates for everyone.