In its preview for the FOMC meeting on Wednesday at 2 pm ET, Goldman Sachs says the Fed won’t remove or substantially modify its forward guidance that the funds rate will stay at its current level for a “considerable time” after the asset purchase program ends.
On its own, a removal of “considerable time” would be a big hawkish shift which, according to Goldman Sachs, might be warranted if the news about the recovery had changed substantially, but that is not the case.
“Indicators of output growth such as real GDP and the ISM have improved, but labor market improvement has slowed, inflation has come back down, and financial conditions have tightened a bit. Consistent with this, we see few signs that the center of the committee has moved its liftoff date forward from mid-2015,” Goldman writes in a note to clients.
Instead of this shift, Goldman Sachs believes there is a better plan that should be acceptable to many proponents of more data-dependent guidance.
“Under this plan, the committee would keep the existing guidance in place this week. It would drop the phrase “after the asset purchase program ends” but keep the “considerable time” language in October, provided the recovery continues to match expectations. And it would then decide in December whether to extend the guidance further, move to weaker wording such as “patient,” or go a more data-dependent route,” Goldman Sachs economists said.
What Goldman’s economists say and what the traders are doing are two different things.
If you can’t trust Goldman Sachs, who can you trust?
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