Goldman Sachs: If Inflation Does Not Cool, Fed Likely to Hike Rates as Early as September

June 18 — Goldman Sachs Group Vice Chairman and former Dallas Federal Reserve President Robert Kaplan is flagging that if inflation stays red-hot, the U.S. Federal Reserve might need to lift interest rates as early as September. In prepared comments, Kaplan noted that if inflation data between now and September fails to show meaningful cooling, “it would be wise for the Fed to act in September or this fall — that would be the more prudent course.” The remarks come on the heels of Fed Chair Jerome Powell signaling the central bank’s laser focus on taming inflation, which has shifted market sentiment sharply hawkish. Traders dumped short-term U.S. government bonds, pushing some key yields higher. Powell’s stance got backup from fellow Fed officials: half of them now project a rate hike before the end of the year. Kaplan added that stubbornly high inflation is a clear sign monetary policy remains too loose. He also emphasized that Fed rate hikes are rarely one-off moves. “When the central bank lifts rates, it usually does so in a series of two or three increases,” Kaplan explained. “So if they pull the trigger in September, markets should prepare for possibly one or two more hikes after that.”