Goldman Sachs economists expect the Fed to aggressively tighten monetary policy this year and raise the interest rate four times. As for the reduction of the Fed's balance sheet, economists predict that this process will not begin until July.
"The improvement in the labor market situation, namely a further decline in the unemployment rate, as well as the hawkish signals contained in the minutes of the December Fed meeting suggest that policy normalization will occur at a faster pace than currently expected," Goldman Sachs said.
"Taking into account all these factors, we now expect the beginning of the reduction of the Fed's balance sheet in July. But since inflation is likely to exceed the target level in July, we also expect an increase in interest rates. According to our forecasts, the Fed will raise the rate in March, June, September, and December," Goldman Sachs noted.
The minutes of the Fed's December meeting reported that policymakers intend to act faster than in the last policy tightening cycle in order to prevent the US economy from overheating amid high inflation and almost full employment. Policymakers also said that the timing of the balance sheet reduction is likely to be closer to the timing of the rate hike than in the previous FOMC forecast.