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March FOMC Preview – Goldman Sachs

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 16, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Research Team at Goldman Sachs, suggests that at its meeting in late January, the FOMC suspended its normal n balance of risks assessment over concerns about tighter financial conditions and downside risks to growth.

    Key Quotes

    “Although policymakers continue to express some caution about the outlook, financial conditions have eased considerably over the last month, and incoming data have held up reasonably well.

    We do not think the committee is ready to raise rates next week, but expect the statement to say that risks are “nearly balanced”. Guidance from the meeting in general should indicate that another rate hike is likely before too long—we expect an increase at the June 14-15 FOMC meeting, but action at the April 26-27 meeting is not inconceivable.

    In the Summary of Economic Projections (SEP), we look for: (1) a small reduction in GDP growth projections for 2016 and possibly for the longer-run; (2) a one-tenth increase in core inflation for 2016, to +1.7% Q4/Q4; and (3) a 25bp reduction in the median funds rate projection for 2016-2018, as well as for the longer-run.

    Beyond next week’s meeting, we think markets may be underestimating Fed officials’ tolerance for tighter financial conditions over time. In fact, we expect that financial conditions will need to tighten moderately over the next year to bring employment growth to a trend pace, which probably requires a steeper funds rate path than currently priced in the bond market.”
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