Fed To Hike Rates 11 Times By End Of 2023

Get ready for some serious increases in the cost of borrowing money.

Red hot wage inflation and an exceptionally tight labor market will lead the Federal Reserve to raise its benchmark interest rate by 11 time by the end of year year, according to a new report from Wall Street bank Goldman Sachs.

“A very high inflation path in 2022 should make an easy case for steady rate hikes at all seven remaining FOMC [Federal Open Market Committee] meetings,” the report states. “In light of our higher inflation forecast for 2023, we now expect four additional quarterly hikes next year (vs. three previously.)” [My empahsis.]

That makes a total of 11 increases in the cost of borrowing money over the next 22 months, if Goldman is correct.

The report suggests the base interest rate could climb as high as 3%.

Goldman’s forecast should be something of a concern for stock and bond investors alike.

Bond prices tend to to fall when interest rates rise. That’s more so for the longer dated ones than the shorter term bonds. In other words, 10-year T-notes will be impacted more than the 2-year notes.

For stocks, we’ve already seen something of an advance reaction to the possibility of substantial rate hikes. The S&P 500 started falling at the break of the new year. The tech-heavy NASDAQ
NDAQ
started falling in November.

In both cases the impact seems to have been greater on stocks that had no dividends.

However, the most worrying part of Goldman’s thesis is that there will be one more hike than the Wall Street wizards previously expected. In other words, the Fed will now likely be more aggressive in fighting inflation.

That goes somewhat contrary to the people I’ve been talking to recently who seem to believe that inflation may be peaking and hence the Fed will have to do less than was expected.