Goldman Sachs says US inflation may be worse than expected, Atlanta Fed president supports 25 basis point rate hike

Economists and analysts note that inflation in the United States is likely to remain high.

In a report released by Goldman Sachs, it was explained that inflation this year could be worse than initially feared. Moreover, in terms of inflation and the invasion of Ukraine, an economics professor at the American International College (AIC) stressed that “a perfect storm is brewing”.

A new inflation report from Goldman Sachs economists shows that the inflation situation in 2022 is very bad and may not get better this year. "As we expected, the inflation situation has deteriorated this winter, and it is still a question to what extent it will improve later this year," the financial institution's report explained. The Goldman Sachs report to investors came before the release of the Consumer Price Index (CPI) report showing that the inflation rate in the United States has climbed at the fastest rate in 40 years since February 1982.

The report further disclosed that the financial institution believes that inflation could rise if supply chains and energy producers are disrupted due to the conflict between Ukraine and Russia.

"The initial inflation surge may have lasted long enough and reached a high enough peak," Goldman Sachs analysts said. The report further emphasized that a strong job market combined with rising inflation could "trigger a wage-price spiral."

Economists and analysts are watching the Federal Reserve and trying to guess what the central bank will do in March. John Rogers, an economics professor at AIC, said things will depend on the Fed's decision on inflation. "We have a perfect storm brewing," Rogers told reporters. "Inflation is going to be pretty strong at least through the end of the year."

“It’s just geopolitical instability. You’ve seen the stock market be highly volatile over the last few weeks. Anybody who has a 401k plan is probably nervous about that. Another big area is energy, which is a global market, and with oil prices going up globally, that affects us as well.”

Meanwhile, the Federal Reserve signaled that its benchmark interest rate could rise “very soon,” with Fed Chairman Jerome Powell hinting that a hike could come in March. Gold investor and economist Peter Schiff said last week that the conflict in Ukraine could keep the Fed’s benchmark rate low.

“Perhaps the Fed is relieved by Russia’s invasion of Ukraine because now it has an excuse not to raise rates in March,” Schiff wrote on Twitter.

Atlanta Fed President Raphael Bostic told attendees at a Harvard University virtual event on Monday that he favors a rate hike of about 25 basis points. "I still favor a 25 basis point move at the March meeting," Bostic told a group of Harvard students participating in the discussion.