Goldman Sachs is now predicting that the Fed will raise interest rates more than expected in 2022. On Monday, the Wall Street giant announced it expects four hikes – one more than previously forecasted – as the Federal Reserve battles rising inflation and a tightening jobs market. Sachs also believes the central bank will start selling some of its assets as early as July. In other Fed-related news, experts warn that markets could be whipped around this week as chairman Jerome Powell testifies before Senate at his nomination hearing on Tuesday. All eyes will be on him as he’s challenged to answer questions from Democrats and Republicans concerning inflation and his goals for “maximum employment.”

 

Business Insider/Harry Robertson
Goldman Sachs now thinks the Fed will hike rates four times in 2022 and start slashing its balance sheet in July

Goldman Sachs now thinks the Federal Reserve will hike interest rates four times in 2022 as it grapples with red-hot inflation, having previously penciled in only three rate rises.

The Wall Street giant said in a Monday note it believes the Fed will start selling some of its assets as early as July. The central bank currently holds almost $9 trillion worth of bonds, mainly government ones.

The rate hikes and balance-sheet reductions could prompt further volatility in stocks, by pulling down bond prices. That in turn would push up yields, making the securities look more attractive to investors.

Stocks — particularly in speculative technology companies — have tumbled this year as investors prepare for the US central bank to dial back its support for the economy and financial markets.

Goldman said that recent positive economic data was likely to intensify Fed officials’ concerns about inflation, which is running at a 39-year high.

Read the full story, here.

 

CNBC/Patti Domm
Inflation, rising rates and the Federal Reserve could whip stocks around in the week ahead

The bond market could again set the course for the week ahead, after rapidly rising interest rates gave stocks a choppy start to the new year.

In the coming week, key inflation reports are expected, and Federal Reserve Chairman Jerome Powell is slated to testify Tuesday at his nomination hearing before a Senate panel, while the hearing on Fed Governor Lael Brainard’s nomination to the post of vice chair is set for Thursday.

The week also marks the start of the fourth-quarter earnings period with reports from major banks JPMorgan Chase, Citigroup and Wells Fargo on Friday.

“Inflation and the Fed continue to be the theme next week, but I do think we’re looking forward to have some earnings results to sink our teeth into,” said Leo Grohowski, chief investment officer of BNY Mellon Wealth Management. “We do think it’s going to be a good quarter and a good year for earnings, which is why we’re generally upbeat on the prospect for earnings.”

You can read the entire article, here.

 

Politico/Victoria Guida
Powell was called on to save the economy. His next challenge will be even tougher.

Federal Reserve Chair Jerome Powell has won bipartisan praise for two years for helping to rescue the economy. Now, as he faces a Senate confirmation hearing for a new term, he has a hard message to deliver: The party’s ending.

With inflation surging at its highest rate in four decades, the Fed has begun to pull back on its extraordinary support for financial markets and is talking about raising interest rates much sooner than anyone expected. It’s a lightning-fast turnabout from just a few months ago when the central bank was still buying $120 billion in U.S. government debt every month to supercharge its efforts to keep borrowing costs low during the pandemic.

For Powell, the way forward is charged with peril: If he slams on the brakes too fast, the economy could falter and even slip into recession, dashing hopes for the Fed’s goal of “maximum employment.” Moving too slowly to rein in price spikes risks the danger of even higher inflation. Either scenario could be a nightmare for President Joe Biden’s Democrats in an election year.

Powell is widely credited with taking quick and sweeping action to keep the economy afloat during the severe pandemic disruptions, so his confirmation is not in any jeopardy. But heightened frustration among Americans about soaring prices is fueling congressional pressure on the Fed chief — a Republican who was first elevated to the chair by President Donald Trump — over how the Fed will respond.

You can read the full story, here.

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