More accurately, here is the second completely separate March Federal Reserve FOMC meeting preview from Goldman Sachs.

I posted a preview from economists Zach Pandl and Jan Hatzius here.

This is a separate piece from chief US equity strategist David Kostin. Its not just a preview of the FOMC, but it does have a strong focus on the meeting (announcement and press conference is Wednesday, 16 March)

OK, to the piece, summary in brief, bolding is mine:

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  • Our commodity strategists believe that the surge in commodity prices is premature and unsustainable
  • They continue to forecast a trendless but volatile oil market
  • Forecast crude prices in 2Q 2016 ranging between $25 and $45/bbl
  • While investors focus on oil and the ECB, they overlook the largest current macro market risk - and opportunity - which centers on the Fed.

Although our economists expect rates will remain unchanged, a credible argument can be made for the FOMC to proceed with the "flight path" it had previously outlined.

  • The unemployment rate stands at 4.9%,
  • Core inflation has surprised to the upside, with PCE rising to 1.7% in February.
  • Our economists expect three 25 bp funds hikes in 2016.
  • However, despite the Fed standing within striking distance of its dual mandate, investors have rejected this forecast. Fed futures prices currently imply less than a 50% chance of a hike in June, and only two full rate hikes through the end of 2017.

Outlook for markets

  • Fed tightening, especially contrasted with easing by the ECB and BOJ, should drive the dollar higher and benefit domestic-facing US stocks
  • As we discussed last week, our FX strategists expect policy divergence and interest rate differentials will drive the USD higher by 8% this year
  • We forecast a tightening Fed and lower oil prices will return upward momentum to the performance of stocks with strong balance sheets
  • Strong balance sheet stocks began to outperform their weak balance sheet counterparts as QE ended. We believe the trend will continue as the Fed normalizes policy given that leverage for the median S&P 500 stock stands at the highest level in a decade
  • Although the recent oil rally tightened credit spreads and eased the pressure on weak balance sheet stocks, we expect high leverage and tighter financial conditions will support strong balance sheet stocks as the cycle matures. The reversal in crude oil prices expected by our commodity strategists should hasten the dynamic.

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