Goldman Sachs said it expects the Federal Reserve to raise interest rates three more times this year, each by 25 basis points, after data released earlier this week showed a persistent threat of inflation and a very strong job market.

Data on Thursday showed U.S. producer prices rose in January by the most in seven months, while a Labor Department report showed initial claims for unemployment benefits unexpectedly fell last week.

Goldman Sachs economists led by Jan Hatzius said in a note on Thursday:

"Given the strong economic growth and firmer inflation data, we expect another 25 basis point increase in June, with the federal funds rate peaking at 5.25-5.5 per cent."

At the same time, money markets are now predicting a terminal rate of 5.3 per cent in July. Following recent U.S. data, European investment bank UBS said it expects the Fed to raise rates by 25 basis points at its March and May meetings, which could leave the federal funds rate in a range of 5-5.25 percent. Ubs wrote in a note to clients:

"After raising rates to this range, we expect the FOMC [Federal Open Market Committee] to turn the tables and start cutting rates at the September FOMC meeting."

Jp Morgan forecast before the latest US data release that terminal rates would be 5.1% by the end of June, while Bank of America Global Research forecast terminal rates in the range of 5-5.25% by the end of the year. Previously, Bank of America also forecast two rate hikes of 25 basis points this year.

Most economists polled before the latest data said they expected the Fed to raise rates at least two more times in the coming months, with the risk of further hikes, though none of them expected the central bank to cut rates this year.

The rapid change in market expectations, in addition to the impact of data, is also related to the Federal Reserve's recent frequent eagle. On Thursday, Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard both "put the eagle out," stating that they favored a return to more aggressive rate hikes in the future and said they saw a need to raise rates by 50 basis points at the Fed's meeting earlier this month.

As a result, the bond market is rapidly moving from the dovish side to the hawkish side, and is now beginning to expect the terminal Fed funds rate to be higher than the Fed's dot plot forecast in 2023.