Federal Reserve will jackup interest rates 10 times before 2025: Goldman Sachs
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Brace for a heavy dose of interest rate hikes out of the Federal Reserve, warns strategists at Goldman Sachs.
"Our economists expect the Fed will begin its hiking cycle at the March meeting and hike a total of four times in 2022. They expect an additional three hikes in 2023 and three hikes in 2024. The market is currently pricing a similar pace of tightening in 2022 but expects fewer total hikes this cycle," said Goldman Sachs strategist Ben Snider in a research note on Thursday.
Inflation remains a pressing problem not only for the Federal Reserve, but consumers and businesses.
The Bureau of Labor Statistics' December CPI reading showed prices rose at a 7.0% year-over-year clip at the end of 2021, marking the fastest increase since 1982. Gains reflected strong increases in the prices of shelter and used vehicles, among other items The headline increase matched economist estimates, and accelerated from November's already elevated 6.8% increase.
Within the report, the food at home index rose 6.5% over the last 12 months, compared to a 1.5% annual increase during the last 10 years.
Snider believes investors have to search for higher quality stocks ahead of the hiking cycle.
"At a factor level, value has generally outperformed around the start of recent hiking cycles. Stocks with “Quality” attributes like strong balance sheets and high returns on capital have tended to lag before the first hikes but outperformed in the months afterward," Snider adds.
Value has already begun to outperform, as Snider suggests.
The Vanguard Value Index Fund ETF has gained 4.1% over the past month, outperforming the S&P 500's relatively unchanged reading. The ETF tracks the return of large-capitalization value stocks.
To be sure, Snider isn't along in advising caution on stocks right now given Fed policy uncertainty.
"If you go back to the post World War II era and look at every hiking cycle — when the Fed was moving quickly versus slow cycles where they might take a break for a meeting or two — there is a huge difference in terms of how the market behaved in a slow cycle," Sonders explained. "I think these bouts of volatility — some leadership shifts that can happen really quickly — I think that is likely to stay with us at least in the first half of this year," said Liz Ann Sonders, Charles Schwab chief investment strategist, on Yahoo Finance Live.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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