After the Fed made a unanimous decision to raise benchmark lending rates by 25bps on Wednesday and the majority of the board expressed a need for further tightening, Goldman Sachs has changed its earlier prediction and now says another hike could happen as soon as next month during the October sitting of the FOMC.
Earlier on, the investment bank had posited that the September hike was the last that would happen and that future Fed meetings would end with the bank holding rates steady or announcing cuts.
The change of heart comes after the bank analyzed the rate projections released by the Fed indicating that most board members at the Fed anticipate a minimum of one more hike before this year ends. Goldman Sachs picked October as the timing of the next hike because comments made by Fed members after the FOMC meeting suggested there was consensus that time was of the essence in reining in inflation.
Those views, Goldman Sachs says, indicate that the Fed will act as soon as it can to tighten monetary policy further so that the task of bringing down inflation doesn’t get any harder than it already is.
Warsh, the Fed Chair, described the 25bps increase as just a dose of the loose monetary climate that needed to be pegged back, and those comments leave no doubt about the willingness of the Fed to institute more hikes in quick succession.
The decision on Wednesday served to allay some fears in markets that Warsh would pander to the wishes of President Trump in guiding the policy decisions made by the Fed. Warsh took office at a time when Trump had conducted a sustained attack against Kevin Powell for not lowering lending rates quickly enough, and Warsh was seen as someone willing to ease monetary policy rapidly.
The realities faced by the economy have left the new Fed chair with no doubt as to what actions the central bank needs to take regardless of what the White House wishes.
Markets will now be watching how other central banks of major economies decide on interest rates as the turmoil in the Middle East rattles energy markets and keeps oil prices elevated above $100 per barrel.
This September rate hike in the U.S. could have an immediate impact on sectors like banking, retail, transportation and other sectors where conglomerates like Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B) have stakes. Performance over the next few quarters in the entities they own or hold stock in will be under increased focus.
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