Federal Reserve Chairman Jerome Powell’s high-profile speech at the central bank’s annual meeting in Jackson Hole this week is expected to demonstrate a firm will to fight inflation, but on the degree of hawkishness, Goldman Sachs chief economist Unlike others, Jan Hatzius believes that Powell will not emulate former Chairman Paul Volcker’s bold and aggressive style of raising interest rates, predicting that the Fed will raise rates by 2 yards (50 basis points) in September. Not a size 3.
Hatzius believes that Powell will reiterate the contents of the July post-meeting press conference and the minutes of the July Federal Open Market Committee (FOMC) meeting to illustrate the conditions for slowing rate hikes.
“The Fed has already raised rates by 3 yards twice in a row, and unless there is a major economic surprise, it will raise rates by 2 yards in September,” he said. “I don’t think Powell will make the increase clear, but say there is some risk of over-tightening. , so a slightly slower pace of rate hikes is reasonable than a big rate hike.”
According to Goldman Sachs forecast, the Fed will raise interest rates by 2 yards in September, and 1 rate in November and December.
Investors may agree with Hatzius, as U.S. stocks steadied on Tuesday, although the S&P 500 was still down 4 percent from a week ago and U.S. Treasury yields fell from 3 percent.
Hatzius said Powell would still stress that the fight against inflation is not done and that the Fed remains committed to getting inflation back to its 2 percent target.
The Fed has raised interest rates four times this year, from 0% to 2.5%, but U.S. inflation remains at a 40-year high of 8.5%.
Hatzius believes the Fed will try to strike a balance by raising interest rates to moderate the prices of goods and services while avoiding a recession. He predicts that this cycle of U.S. rate hikes will eventually rise to 3.5 percent or higher.
“We’ve been in the camp of a soft landing, followed by a cooling growth environment, and in a year or two, inflation will be much lower than it is now,” he said.