Fed Tightening Cycle: This time it’s different – Goldman Sachs

By FXStreet FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that there are several dimensions along which this tightening cycle, as they predict it, will be very different from those of the past.

Key Quotes

“The following are likely to matter for macro rates:

• We expect a longer cycle than observed in the recent past. We expect it to take about three years for the Fed to end the tightening cycle. In our view, this increases the likelihood that positive or negative shocks will hit the US economy, which would require a change of plan. This suggests to us that rates volatility will remain high, particularly until more certainty emerges on the pace of hikes and visibility on the terminal rate.

• The central bank can use a range of instruments to tighten its policy stance: the interest rate on excess reserves, overnight reverse repo facility, term deposit facility and SOMA portfolio. The Fed’s ability to raise the federal funds rate in the context of its large balance sheet is untested and, hence, the possibility that the Fed will need to use a different set of instruments than it currently expects cannot be ruled out.

• In addition to the technical considerations about …read more

Source:: FX Street