Goldman Sachs expects four rate hikes in 2022. It’s not all bad news for stocks.

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The Federal Reserve Building Marriner S. Eccles

Stefani Reynolds / Bloomberg

Goldman Sachs

Now expects the Federal Reserve to hike interest rates four times in 2022 and has said the central bank could start its balance sheet runoff as early as July.

Bond yields surged last week after the Fed’s December minutes signaled the possibility of a rate hike in March and revealed talks to reduce its balance sheet by $ 9 trillion. The 10-year Treasury bill yield rose 27.3 basis points to 1.769% last week through 3 p.m. ET on Friday, the biggest weekly gain since September 2019. The yield rose again on Monday morning to approach 1.78%.

The minutes also led Goldman chief economist Jan Hatzius to add a further hike in December to the previous forecast for hikes in March, June and September. “The weaker labor market slowdown has made Fed officials more sensitive to the risks of upward inflation and less sensitive to the risks of downward growth,” he said in a note Sunday night.

He also cited Federal Open Market Committee (FOMC) discussions around the central bank’s balance sheet, which conveyed “a greater sense of urgency than we expected.”

Goldman now sees the balance sheet runoff begin in July, earlier than its previous December forecast, but said it could be even earlier than that. “With inflation probably still well above target at this point, we no longer think the start of the runoff will substitute for a quarterly rate hike,” Hatzius said.

It’s not all bad news for stocks, which have been hit by rising bond yields in recent days. The bank’s rate strategists see the upward trend in bond yields slowing in the coming weeks: “This could allow stock prices – which are often more sensitive to changes in bond yields than their level – to regain a part of the lost ground “.

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