Following March consumer pricing data, Goldman Sachs (GS.N) economists no longer anticipate the U.S. Federal Reserve to hike interest rates in June.
Goldman Sachs predicted consecutive rate rises at the Fed’s May and June meetings. The research paper by economists led by Jan Hatzius predicted a May rate rise.
Goldman’s new forecast matches investor expectations. After Wednesday’s inflation report, CME interest rate futures showed traders still expect a 25 basis point rate rise in May, no rate hike in June, and a high possibility of a rate decrease in July.
Goldman said the latest inflation data was in line with its forecasts. Its updated projection for no rate rise in June was prompted by signs that banks are tightening lending after Silicon Valley Bank’s failure.
“We have taken out the June hike in part because the limited data available so far appear to confirm that credit is indeed somewhat tight in the aftermath of the banking turmoil, and in part because some Fed officials appear hesitant about even a May hike,” the economists said.
In another client note, BofA Global Research said March inflation data likely puts the Fed on pace for a May rate rise.
“Despite the improvement in March, inflation is still likely much too high from the Fed’s perspective,” BofA economists said.
According to Labor Department figures, March headline and core CPI grew 0.1% and 0.4%, respectively. Economists predicted 0.2% and 0.4% increases.
The headline number grew 5% vs. experts’ predictions of 5.2%, while the core measure, which excludes volatile food and energy costs, jumped 5.6%.
