Summers Again Says "Fed May Raise Rates"... Goldman Sachs Cuts Rate Cut Forecast from 3 to 2 This Year

March CPI Increase Rate Exceeds Expectations for Three Consecutive Months
Hopes for Interest Rate Cuts in First Half Fade Away

Former U.S. Treasury Secretary Larry Summers once again mentioned the possibility that the U.S. central bank, the Federal Reserve (Fed), may raise interest rates. With the March Consumer Price Index (CPI) inflation rate exceeding market expectations for the third consecutive month, hopes for a rate cut in the first half of the year seem to have faded.

On the 10th (local time), Summers appeared on Bloomberg TV and stated, "The next interest rate move should be seriously considered as a hike rather than a cut."

He said the March CPI data increases the risk of a rate hike, estimating the probability of the Fed raising rates at 15-25%. Earlier, in February, Summers had suggested a 15% chance of an additional rate hike by the Fed, but this time he raised that possibility. According to the U.S. Department of Labor on the same day, the March CPI rose 0.4% month-over-month and 3.5% year-over-year, surpassing expert forecasts of 0.3% and 3.4%, respectively. The core CPI, which the Fed closely monitors, also increased by 0.4% month-over-month and 3.8% year-over-year, exceeding market expectations of 0.3% and 3.7%.

Regarding this, Summers emphasized that the supercore service inflation, which Fed officials pay close attention to, has accelerated. Supercore service inflation refers to service prices excluding food, energy, and housing costs.

He stressed, "Given the current facts, a rate cut in June would be a dangerous and severe mistake comparable to the error the Fed made in the summer of 2021," adding, "There is no need for a rate cut at this moment." The Fed underestimated inflation risks in 2021 and only began high-intensity tightening belatedly from March 2022.

Global investment bank Goldman Sachs also lowered its forecast for the number of rate cuts this year from three to two immediately after the March CPI release.

Goldman Sachs explained the reason for revising its forecast, saying, "We need to see a balance between the stronger inflation observed in the first quarter and a series of easing indicators expected over the coming months."

Initially, Goldman Sachs expected the Fed to cut rates five times this year. However, as the pace of inflation slowdown appeared slower than expected, it reduced the forecast to four cuts in February and then to three cuts in March. Last month, Goldman Sachs anticipated the Fed would start cutting rates in June and reduce rates three times in June, September, and December, but after the CPI release, it revised the forecast to two cuts in July and November.

This content was produced with the assistance of AI translation services.