Goldman Says Fed May Accelerate Tapering in January: Report

Having kicked off the unwinding of the crisis-era stimulus this month, the U.S. Federal Reserve may accelerate the pace of the tapering next year, according to a Bloomberg report, citing a client note from Goldman Sachs.

• The central bank will double the pace of scaling back its liquidity-boosting asset purchases to $30 billion per month from the current $15 billion, Goldman economists said, predicting three rate hikes in 2022 and two in 2023.

• The new projections mean the asset purchase program would end in March.

• The investment banking giant expects the first rate hike from near zero will come in June.

• “The increased openness to accelerating the taper pace likely reflects both somewhat higher-than-expected inflation over the last two months and greater comfort among Fed officials that a faster pace would not shock financial markets,” economists led by Jan Hatzius noted.

• The Fed cut rates to nearly zero and began purchasing assets worth $120 billion per month following the coronavirus-induced crash of March 2020.

• The massive liquidity injections led to unprecedented risk-taking across all corners of the financial market, including bitcoin.

• Minutes from the Fed’s November meeting released Wednesday showed a growing number of policymakers were ready to speed up pace of the taper and raise interest rates if inflation continues to run high.

• Faster unwinding of stimulus, if any, may weigh over bitcoin, which remains vulnerable to fed tightening, and asset prices, in general. The cryptocurrency fell almost 7% on Friday amid a massive pullback in the financial markets as concerns over a new coronavirus variant damped risk appetite.