An overnight piece from Goldman Sachs chief economist Jan Hatzius

  • Our financial conditions index is now about 50bp below its November 2016 average
  • & near the easiest levels of the past two years

Hatzius asks:

  • If the Fed retains its ability to steer financial conditions, why have financial conditions eased recently despite ongoing hikes?

& Answers

  • Fed policy-especially Fed policy communicated around FOMC meetings-only accounts for a relatively small part of the ups and downs of financial conditions
  • And other developments such as the sharp pickup in global growth have been helpful for US financial conditions by boosting risk assets while keeping the US dollar from appreciating sharply in response to higher short-term interest rates

And, thus on the outlook for the Federal Reserve:

  • Our best (though uncertain) answer is that the committee will need to deliver 50-75bp more hikes per year than priced in the forwards to stabilize the economy at full employment.
  • This is roughly consistent with our current funds rate call that we will see an average of 3-4 hikes per year through the end of 2019, compared with market pricing of just over 1 hike."

(Bolding above is mine ... though I ain't buying it)