Inflation surge could push the Fed into more than four rate hikes this year, Goldman Sachs says

cnbc.com:

Accelerating inflation could cause the Federal Reserve to get even more aggressive than economists expect in the way it raises interest rates this year, according to a Goldman Sachs analysis.

With the market already expecting four quarter-percentage-point hikes this year, Goldman economist David Mericle said the omicron spread is aggravating price increases and could push the Fed into a faster pace of rate increases.

«Our baseline forecast calls for four hikes in March, June, September, and December,» Mericle said in a Saturday note to clients. «But we see a risk that the [Federal Open Market Committee] will want to take some tightening action at every meeting until the inflation picture changes.»

The report comes just a few days ahead of the policymaking group's two-day meeting starting on Tuesday.

Markets expect no action regarding interest rates following the gathering but do figure the committee will tee up a hike coming in March. If that happens, it will be the first increase in the central bank's benchmark rate since December 2018.

Raising interest rates would be a way to head off spiking inflation, which is running at its highest 12-month pace in nearly 40 years.

Mericle said that economic complications from the Covid spread have aggravated imbalances between booming demand and constrained supplies. Secondly, wage growth is continuing to run at high levels, particularly at lower-paying jobs, even though enhanced unemployment benefits have expired and the labor market should have loosened up.

«We see a risk that the FOMC will want to take some tightening action at every meeting until that picture changes,» Mericle wrote. «This raises the possibility of a hike or an earlier balance sheet announcement in May, and of