More than 50% chance Federal Reserve hikes rates by end of 2023: Goldman Sachs

Brian Sozzi · Executive Editor

Thu, Jun 17, 2021, 5:19 AM 2 min read

"We have changed our forecast of the timing of the first hike to 2023Q3, from 2024Q1 previously," Goldman Sachs Chief Economist Jan Hatzius said in a research note Thursday. "However, we see the odds of a hike by the end of 2023 as only modestly better than 50% because liftoff could easily be derailed by lower-than-expected inflation or a sharper deceleration in growth as fiscal support fades."

Serving as the gasoline on the interest rate increase debate about to ensue is none other than the Federal Reserve.

The Fed on Wednesday held interest rates at near zero. But with the economic recovery from the pandemic gaining steam, Fed officials penciled in two rate hikes by the end of 2023. What's more, Fed chief Jerome Powell told reporters after the decision the Fed began discussing the tapering of bond purchases.

"We continue to expect the first hint about tapering in August or September, followed by a formal announcement in December that would begin the tapering process at the start of next year, though the risks lean toward an earlier start," Hatzius said.

Equities markets globally — which have been sent skyrocketing this past year amid all the cheap money sloshing around the financial system from the Fed — reacted negatively to the Fed's hawkish musings. Dow futures tanked more than 120 points Thursday morning, gold and copper prices came under pressure and high-flying tech stocks (which have benefited from low rates) such as Facebook and Amazon continued to have a bearish bid.

"As we have described elsewhere, we don’t think that tapering the quantitive easing program will create tangible stress to the economy or markets, and in fact think that the biggest risk today would be an overheating paradigm where it’s hard to predict how high input, or wage, costs could get. Markets are likely to adjust accordingly in some areas, such as extremely distorted real rates across much of the yield curve, but we believe the markets will ultimately cheer a return to normalcy," explained Rick Rieder, BlackRock's chief investment officer of global fixed income.

Yahoo Finance Fed correspondent Brian Cheung contributed to this story.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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