50 Bip Hike Becomes Consensus

Well that didn’t take long. Just yesterday, Jerome Powell was admitting the error of his ways believing that inflation was transitory. He also took a more aggressive tone when discussing future rate hikes. Now Goldman Sachs expects a 50 bip rate hike in both May and June…(Reuters)

• “Our best guess is that the shift in wording from ‘steadily’ in January to ‘expeditiously’ today is a signal that a 50bp rate hike is coming,”

BUT WAIT. THERE’S MORE: They anticipate four further 25 basis point rate hikes in 2022, one at each Fed meeting in the second half of this year, and three hikes in 2023…

Goldman Sachs prediction came a few hours before Federal Reserve Bank of St. Louis President James Bullard said U.S. monetary policy needs to be tightened quickly to stop putting upward pressure on inflation that is already too high…(Bloomberg)

• “I would probably get to a restrictive policy so we are putting some downward pressure…History tells us that the faster we moved to that situation, the better chance we will have of moving inflation back to target and getting a boom in the U.S. economy.”

When asked about future rate hikes Bullard was on board with a 50 bip hike, ““We came out of the pandemic and we got surprised by inflation…But now what you have to do is move the policy rate up discreetly a fair amount — not to be too disruptive, but I think 50 basis points should definitely be in the mix.”

REMINDER: Bullard was the one dissenting vote at the last FOMC meeting when the committee voted to raised rates a quarter point. Bullard dissented because wanted a 50 basis point hike at that meeting