Goldman’s Hatzius: 35% chance of Fed hike in March and markets aren’t braced for it


Goldman’s Hatzius: 35% chance of Fed hike in March and markets aren’t braced for it
  1. Goldman’s Hatzius: 35% chance of Fed hike in March and markets aren’t braced for it
    marketwatch.com
    The Federal Reserve could raise interest rates as much as four times this year, going beyond what is currently expected by most investors, Goldman Sachs’s chief economist Jan Hatzius says. …
    Finance

The Federal Reserve could raise interest rates as many as four times this year, going beyond what is currently expected by most investors, Goldman Sachs’s chief economist Jan Hatzius said on Monday.

Speaking at a conference in London, Hatzius said there’s a 35% chance of a rate hike in December, placing a higher probability of an imminent increase than the broader market. According to the CME FedWatch tool, Fed fund futures are currently pricing in a 24% chance of rate jump in March.

“We are seeing upward pressure on wage growth, upward pressure on core inflation. We expect further monetary policy normalization from the Federal Reserve to a degree that goes beyond what is priced into the bond market,” Goldman’s chief economist said.

“So for 2017 we’re looking for three hikes from the Fed as a baseline. In June, in September and December. There is some possibility, 35%, for a March hike,” he said.

See also: Goldman Sachs’s chief economist warns of 3 key risks in 2017

The Fed raised interest rates in December for the second time in a decade and penciled in three moves this year. The next rate rise is now seen in June, according to the CME FedWatch tool. However, after the strong wage growth seen in the December jobs report out on Friday economists are increasingly seeing a March hike as a possibility too.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, for example, said on Friday he thinks rates will rise again as soon as March, provided there is some clarification of President-elect Donald Trump’s fiscal policy program by then.

Looking further ahead, Hatzius said the market is too slow at pricing in the speed of rate hikes.

“As we go into 2019-2020, when most people predict the end of the rate hike cycle, we’re forecasting 3.5%, whereas the market is priced for only 2%. We are generally ahead of the market as far as interest rates are concerned,” he said.

Goldman Sachs

Boston Fed President Eric Rosengren said on Monday said that …

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