Goldman Sachs on lack of confidence at the Fed & what’ll happen if “something goes wrong”

Forexlive

<p>Via a client note from economists at Goldman Sachs following the Federal Open Market Committee (FOMC) interest rate hike and higher dot plot revisions. </p><p>(If you missed the news from mid-week:</p><ul><li><a href="https://www.forexlive.com/news/forexlive-americas-fx-news-wrap-fed-hikes-by-75-bps-and-delivers-a-hawkish-dot-plot-20220921/" target="_blank" data-article-link="true">Forexlive Americas FX news wrap: Fed hikes by 75 bps and delivers a hawkish dot plot</a></li></ul><p>)</p><p>Goldman Sachs:</p><ul><li>In our view, if rate hikes solve the inflation problem without a recession, the FOMC would most likely wait until something goes wrong to cut rather than cutting just for the sake of returning to neutral</li><li>the Fed does not have enough confidence in its neutral rate estimate of 2.5% for it to cut rates</li></ul><p>GS rate forecasts to take the fed funds rate seen rising to 4.6% by year-end:</p><ul><li>Federal Open Market Committee (FOMC) will hike rates by 75 basis points at its November meeting</li><li>another 50 basis points rise in December</li></ul><p>GS looking ahead to 2023, the path of the funds rate in 2023 will depend on two issues:1. how quickly growth, hiring and inflation slow. While there are risks in both directions, we see more risk that a higher peak rate will be needed to reverse overheating than that the Fed will stop earlier</p><p>2. whether FOMC participants will really be satisfied with a sufficiently high level of the funds rate and willing to slow or stop tightening while inflation is still uncomfortably high</p><p>Remaining 2022 meetings:</p>

This article was written by Eamonn Sheridan at forexlive.com.