23 Nov Big Banks remain confident of rate hikes
Goldman Sachs Group Inc. and JPMorgan Chase & Co. are sticking with forecasts for the
Federal Reserve to hike interest rates five more times by the end of 2019 even as financial
In reports released in the past 24 hours as the Standard & Poor’s 500 index tumbled toward a
correction, economists at the Wall Street giants predicted Chairman Jerome Powell and
colleagues will raise their benchmark interest rate again in December, ultimately reaching 3.50
percent by the end of next year.
“Central banks will deliver more tightening than markets currently anticipate,” the JPMorgan
economists led by Bruce Kasman wrote.
A decline in unemployment to 3.3 percent and an increase in the Fed’s favored measure of
inflation to 2.3 percent will drive the Fed to push up its benchmark from the current level, a
range 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 December hike
and that risks around the call for four increases in 2019 are “broadly balanced.”
While acknowledging the recent selloff in stocks, the Goldman Sachs economists said a review
of market declines since 1994 suggested the Fed only turned accommodative when other
measures of financial conditions also deteriorated substantially or economic growth fell below its
long-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 above
potential today,” Goldman Sachs said.
Investors are more doubtful of whether the Fed will be so aggressive. Economists at Morgan
Stanley 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 determine interest
rates for everyone.