A Goldman Sachs analysis suggests that rising inflation could lead to the Federal Reserve raising interest rates faster than anticipated by economists.

With the market already expecting four quarter-percentage-point hikes this year, Goldman economist David Mericle said the omicron spread is aggravating price increases and could push the Fed into a faster pace of rate increases.

Mericle stated in Saturday’s note to clients that “our baseline forecast calls for four increases in March, June and September” We see the risk that there could be a spike in prices. [Federal Open Market Committee]We will be taking some tightening actions at every meeting, until there is a change in the inflation picture.”

It comes only a few days before the policymaking team’s report two-day meetingStarts Tuesday

The market expects no interest rate action following this gathering, but they do believe the committee will take some steps to raise them. a hike coming in March. It will mark the first rise in benchmark rates by the central bank since December 2018.

To stop inflation from spiking, it would make sense to raise interest rates. its highest 12-monthTempo in almost 40 years

Mericle stated that the economic problems resulting from Covid have increased imbalances between constrained supply and booming demand. Wage growth has continued to rise at high rates, in particular at lower-paying job positions. However, enhanced unemployment benefits are over and the labor force should be loosening up.

Mericle said that “we see the risk that FOMC will want some tightening action every meeting until that situation changes.” “This increases the likelihood of an increase or an earlier balance-sheet announcement in May and more than four hikes for this year.”

CME data shows that traders are pricing in a nearly 95% probability of a rate rise at March’s meeting and more than 85% likelihood of four moves by 2022.

But investors are now beginning to see the possibility of a fifth Fed hike this year. It would be the most aggressive Fed seen since before the start of the new century and efforts to end the dot-com boom. The CME’s FedWatch gauge shows that the odds of a fifth increase in interest rates have increased to 60%.

The Fed is not only raising rates but also increasing them. winding down its monthly bond-buying programThe current deadline to close an effort that more than doubled Central Bank’s financial resources to less than $9 trillion is March. Although speculations have been made by market participants that the Fed may close down the program during next week’s meeting, Goldman says that this is unlikely.

However, the Fed may be able to give more information about when it will begin unwinding its bond holdings.

Goldman projects that the process will commence in July. It will take place in increments of $100 billion per month. The process is expected to run for 2 or 2½ years and shrink the balance sheet to a still-elevated $6.1 trillion to $6.6 trillion. Mericle indicated that it is likely the Fed will let some proceeds of maturing bonds roll off every month, rather than buying outright.

However, there are upside risks in forecasts due to unexpectedly strong and persistent inflation.

Mericle stated that there is a growing likelihood that the FOMC would want to tighten its action during the May meeting. This will be when inflation remains hot. Mericle wrote, “If that is the case, it could lead to four or more rate increases this year.”

However, there are some key economic data points this week. They will be available after the Fed meets.

Fourth quarter GDP will be released Thursday. Economists expect growth of around 5.8%. Friday’s personal consumption expenditures price indicator, the Fed’s preferred inflation gauge is expected to report a 0.5% monthly increase and 4.8% year-over-year.