Goldman Sachs sees Fed raising rates four times in 2018

[NEW YORK] - Goldman Sachs said it expects a tight US labor market and more normal inflation picture will lead the Federal Reserve to hike interest rates four times next year.

"The US economy heads into 2018 with strong growth momentum and an unemployment rate already below levels that Fed officials view as sustainable," Goldman's economists wrote in note dated Nov 17.

Four hikes are more than Wall Street has been expecting for 2018. In a Reuters poll, Wall Street's top banks saw the Fed raising borrowing costs three times in 2018.

The US central bank has raised rates twice this year and currently forecasts another hike in its benchmark lending rate from its current target range of 1.00 per cent to 1.25 per cent by the end of 2017.

The economy's momentum will be helped by reconstruction following recent US hurricanes and also by tax cuts being proposed, the Goldman economists wrote, noting that they have raised their gross domestic product growth forecast for 2018 to 2.5 per cent and lowered their unemployment rate forecast to 3.7 per cent by end-2018 and to 3.5 per cent by end-2019.

The US unemployment rate fell to near a 17-year low of 4.1 per cent in October, from 4.2 per cent in the prior month.

"The strength is becoming 'too much of a good thing' and containing further overheating will become a more urgent priority in 2018 and beyond," the Goldman note said.

REUTERS