Goldman, JPMorgan expect four Fed hikes

Goldman Sachs Group Inc. and JPMorgan Chase & Co. are sticking by their forecasts that the Federal Reserve will raise interest rates four times next year, while acknowledging that the risks to their outlook mounted last week.

Days after investors interpreted a speech by Fed Chairman Jerome Powell as signalling the potential for a 2019 pause in rate hikes, economists acknowledged a shift in tone while noting robust growth, steady inflation and falling unemployment should keep the central bank tightening monetary policy through next year. “Recent events have increased the downside risks to our baseline forecast,” Goldman Sachs economists said in a report.

The Goldman Sachs team said markets “overstated” the shift by Powell, in part because the Fed’s outlook for growth and preference for gradual rate hikes remains “essentially intact.” The economy continues to grow faster than its longterm trend and unemployment is on track to fall below 3.5 per cent, which will “keep the Fed on a continued hiking path,” they said.

They nevertheless joined counterparts at Morgan Stanley in saying Fed officials may reduce the number of rate increases they expect in 2019 to two from the three earlier expected.