Morning Report: Goldman sees 4 rate hikes in 2022

Vital Statistics:

S&P futures4,637-30.2
Oil (WTI)78.65-0.23
10 year government bond yield 1.81%
30 year fixed rate mortgage 3.57%

Stocks are lower this morning as investors fret about rising rates. Bonds and MBS are down.

The upcoming week will be dominated by inflation data, with the Consumer Price Index on Wednesday and the Producer Price Index on Thursday. The street is looking for 0.4% MOM / 7.1% YOY for the headline CPI and 0.5% MOM and 5.4% for the CPI ex-food and energy.

Goldman is out with a call this morning calling for 4 rate hikes in 2022. The Fed Funds futures agree. “Declining labor market slack has made Fed officials more sensitive to upside inflation risks and less sensitive to downside growth risks,” Hatzius wrote. “We continue to see hikes in March, June, and September, and have now added a hike in December for a total of four in 2022.”

The central tendency is now for 4 rate hikes, although it is more or less a toss-up between 3 and 4.

Goldman also sees the central bank beginning the process of shrinking its balance sheet in July. It will probably do this by only reinvesting a portion of maturing assets back into the market. In other words, if $1 billion of MBS and Treasuries mature in a particular month, the Fed might buy $500 million and let the other $500 million “retire.”


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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