The Federal Reserve could raise interest rates three more times this year as it struggles to rein in inflation that's not going away as quickly as hoped, according to Goldman Sachs strategists.
The economists, led by Jan Hatzius, now expect the central bank to lift the benchmark rate by 25 basis points during its meetings in March, May and June.
"In light of the stronger growth and firmer inflation news, we are adding a 25bp (basis points) rate hike in June to our Fed forecast for a peak funds rate of 5.25%-5.5%," Hatzius wrote in the note.
The Fed last month voted to raise its benchmark interest rate another quarter percentage point to a range of 4.5% to 4.75% and signaled that a "couple more" increases are on the table this year. That followed a half-point increase at a December meeting and four consecutive 75 basis point moves. The central bank typically moves the federal funds rate in quarter-point increments.
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But a slew of hotter-than-expected economic data reports, including the blowout January jobs report and a disappointing inflation report that pointed to the pervasiveness of high consumer prices, has raised the specter of a higher peak rate.
The Labor Department reported last week that the consumer price index rose 0.5% in January, the most in three months. The annual inflation rate also surprised to the upside at 6.4%.
That data has prompted some traders to reexamine their rate hike expectations for the year, with a growing number of investors now betting the Fed could raise rates by higher than previously projected. About 58% of traders expect the Fed to increase the federal funds rate by another 75 basis points, while 17% expect rates to increase by a full percentage point, according to data from the CME Group's FedWatch tool.
Fed officials have acknowledged that rates may need to go higher than expected and remain elevated for longer.
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"We have farther to go," Fed Governor Christopher Waller said in prepared remarks earlier this month before the Arkansas State University Agribusiness Conference. "And it might be a long fight, with interest rates higher for longer than some are currently expecting. But I will not hesitate to do what is needed to get my job done."
