The Federal Reserve is going to hold its policy interest rate at peak levels well into next year, said Jan Hatzius, chief economist of Goldman Sachs, on Friday.
“We do expect the Fed to do more than the market expects,” Hatzius said, in an interview with CNBC.
He said the Fed would engineer two more quarter percentage point hikes and then hold steady.
The economic outlook justifies the higher rate path, Hatzius said.
Even if you take the 517,000 job growth in January with a grain of salt, the economy “is doing a lot better” than many forecasts has expected, he said.
See: Jobs report shows blowout 517,000 gain in U.S. employment in January
“The consensus of forecasters continues to be that we’re going into a recession. And there’s just no sign of it,” he added.
Hatzius said he thought the market was getting ahead of itself about the prospects of low inflation.
While inflation is coming down, it won’t get back to the Fed’s 2% inflation target in the next two years.
Traders may be coming around to the idea that the Fed could follow on their forecast of a 25 basis interest rate hike in March and another in May after the strong jobs report.
Read: Job report seen boosting prospect of rate hikes in March and May
Many economists agreed.
“This data all but locks the Fed into another 25 basis point rate hike at the March 21-22 meeting,” said Tom Simons, economist at Jefferies, in a note to clients.
“There is still a lot of data between now and the May 2-3 meeting, no another hike is at that meeting is still very much up in the air. However, today’s data shows so much strength that is is hard to believe the labor market can slow down enough by May to let the Fed pause,” he added.
The economy added 517,000 jobs in January and the jobless rate fell to its lowest level in 1969.
Two more quarter-point rate hikes would raise the Fed’s benchmark rate to a range of 5.0%-5.25%. That was the level of rates Fed officials penciled in to their latest forecast released at the end of last year.
The strong data “is a setback to those expected little more in the way of Fed tightening,” said Josh Shapiro, chief U.S. economist at MFR Inc.
Diane Swonk, chief economist at KPMG , agreed: “This will force the Fed to at least reach its target of 5.25% in 2023 and hold it there the entire year.”
The yield on the 10-year Treasury note
jumped 11 basis points to 3.52% on Friday. It is still well below the 3.88% rate hit at the end of last year.