Goldman strategists expect 0.25% Fed rate hike in February and March 2023

Analysts at Goldman Sachs predict that the federal funds rate will peak at 4.75-5%. In addition, a new increase of 25bp is expected in March 2023. In total, Goldman Sachs advocates a November increase of 75bp, a December increase of 50bp, and subsequent steps of 25bp in both February and March.

The expected increase in the rate by 75bp this month should contribute to an increase in the interest rate on federal funds to the level of 3.75-4%. In addition, analysts at Goldman Sachs hope to receive a signal from Federal Reserve Chairman Jerome Powell that the Federal Open Market Committee (FOMC) will slow down to 50 bps in December.

Strategists have noted three reasons why the Fed is likely to continue its series of interest rate hikes after February.

In their opinion, the first reason may be the persistence of an excessively high level of inflation, which may contribute to continued growth, implemented in small steps along the path of least resistance. As the second reason for the subsequent increase in rates, strategists cited the potential for the economy to remain on a growth path below its potential as fiscal tightening fades and the economy is back on track to rising real incomes. The third reason was the situation in which the upcoming reversal could lead to an easing of financial conditions too soon, as a result of which the FOMC may be required to take further measures, and therefore a new rate hike is quite acceptable.

Taking into account the current situation, leading stock market analysts at Goldman Sachs strongly recommended their clients to hold stocks with high returns and upside potential.