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Jan Hatzius, the chief economist at Goldman Sachs, now expects to see an even more aggressive Fed in the coming months after the Wall Street Journal journalist, Nick Timiraos, run a piece yesterday that the central bank is likely to raise its benchmark rate by 75 basis points later this month.
Timiraos is a well-informed journalist who correctly “predicted” Fed’s actions in the past. His work is closely followed, given that his FOMC previews tend to include hints about what the Fed plans to do. Yesterday, the WSJ reported that the FOMC “appears to be on a path to raise interest rates by another 0.75 percentage point this month,” which practically confirms the market expectations.
The WSJ article prompted Hatzius to change his base-case scenario, which now includes a 75bp rate hike in September (vs. 50bp previously) and a 50bp hike in November (vs. 25bp previously).
“We continue to expect a 25bp hike in December, which would take the funds rate to 3.75-4% by the end of 2022,” Hatzius told clients in a note.
Hatzius believes that the FOMC will likely delay its plan to slow down.
“Our financial conditions index has tightened meaningfully on the hawkish shift in expectations. This should be enough to keep growth on a solidly below-potential path in the second half of 2022. How the drag from tighter financial conditions will net out with other key growth impulses in 2023 is more uncertain, and we could imagine the hiking cycle extending beyond this year,” the economist added.