Goldman Sachs And BOA Consolidate Predictions US Interest Rates Will Rise Three More Times This Year

US Dollar Illustration (Photo: Doc. Antara)

JAKARTA - Goldman Sachs and Bank of America (BoA) predict the US Federal Reserve will raise interest rates three more times this year. This lifted their expectations after data showed persistent inflation and a resilient labor market.

Producer prices increased in January by the biggest margin in seven months, according to data on Thursday, Feb. 16, while a Labor Department report showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week.

"Given stronger growth and stronger inflation news, we are adding a 25 basis point rate hike in June to our Fed forecast, for a peak funds rate of 5.25 percent - 5.5 percent," Goldman Sachs economists led by Jan Hatzius.

Meanwhile, money markets are currently pricing in a terminal interest rate of 5.3 percent in July.

BofA Global Research also forecasts a 25 basis point hike at the Fed's meeting in June, pushing terminal interest rates up to a 5.25 percent - 5.5 percent range.

BofA had previously forecast two rate hikes of 25 basis points each at its March and May meetings.

"Resurgent inflation and solid job gains mean the risks to this outlook (just two rate hikes) are too one-sided for our liking," BofA wrote in a client note.

After the recent US data, European investment bank UBS said it expects the Fed to raise interest rates by 25 basis points at its March and May meetings, which could leave the Fed funds rate in the 5.0 percent - 5.25 percent range.

However, in stark contrast to its US counterparts, UBS predicts that the Fed will cut interest rates at its September meeting this year.

Prior to the recent US data, J.P. Morgan expects the terminal interest rate to be 5.1 percent at the end of June.

The majority of economists polled by Reuters before the latest data said they expected the Fed to raise rates at least twice more in the coming months, with the risk of rate hikes still higher. Neither of them forecast a rate cut this year.