In view of the rising inflation rate in the United States, the Federal Reserve may adopt an aggressive policy and hike interest rates at a faster-than-expected pace, according to an analysis by Goldman Sachs, a US-based multinational investment bank and financial services company.
David Mericle, an economist at Goldman Sachs, has said that even as the market is already expecting four quarter-percentage-point hikes this year, the rise in Omicron cases could prompt the Fed to increase the cost of borrowing "at every Federal Open Market Committee (FOMC) meeting until the inflation picture changes". He, however, added, "Our baseline forecast calls for four hikes in March, June, September, and December."
The analysis report comes just two days ahead of FOMC's proposed two-day meeting on Tuesday. While market observers don't expect FOMC to raise interest rate in this two-day meeting, they forecast that the officials could reach a consensus on effecting a hike in March, which would be the first increase in the Federal Reserve System’s benchmark rate since December 2018.
Meanwhile, according to the CME’s FedWatch tool, the chances of FOMC increasing the interest rate five times this year have moved to nearly 60 percent. If this happens, it would be the most aggressive Fed policy since the dot-com bubble in the late 1990s.
Besides, some market observers also predict that the FOMC would shut down its monthly bond-buying program at next week’s meeting. However, Goldman Sachs doesn't expect it to happen at the two-day meeting, starting Tuesday.
At present, the inflation rate in the United States is at its highest 12-month pace in nearly 40 years. The annual inflation rate was estimated at 7 percent for the 12 months ending December 2021 -- the highest since June 1982.