Goldman Sachs had previously expected consecutive rate hikes at the Fed’s May and June meetings. Economists led by Jan Hatzius said in the research note they still expect a rate hike in May.
Goldman’s latest prediction brings the investment bank into line with expectations of other investors. CME interest rates futures were little changed following Wednesday’s inflation report and continued to imply traders mostly expect a 25 basis point rate hike in May, no rate hike in June and a significant chance of a rate cut in July.
Goldman said the latest inflation data matched its expectations, and that its new forecast for no rate hike in June was driven by hints that banks are reining in lending following the recent collapse of Silicon Valley Bank.
“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 wrote.
In another client note, BofA Global Research said the March inflation data likely keeps the U.S. central bank on track for a May rate hike.
“Despite the improvement in March, inflation is still likely much too high from the Fed’s perspective,” BofA economists wrote. Wednesday’s inflation report adds to recent indicators suggesting the Fed’s aggressive campaign to control decades-high inflation is softening the economy and affecting prices.
Labor Department data showed headline and core CPI in March rose 0.1% and 0.4%, respectively, on a month-on-month basis. Economists were expecting a rise of 0.2% and 0.4%, respectively.
On a year-over-year basis, the headline number rose 5% against economists’ estimates of a 5.2% rise, while the core measure, which strips out volatile food and energy prices, climbed 5.6% in-line with consensus estimates.
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