FOMC: Road map to hikes in March and beyond – Goldman Sachs

By FXStreet FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that the FOMC raised its target range for the federal funds rate to 0.25-0.50%, shifting attention to the pace of subsequent hikes.

Key Quotes

“While the median dot indicates a further 100bp increase in the funds rate in 2016, implying a second hike in March, the market is skeptical. In this week’s Analyst, we provide a road map to a March hike and assess how confident investors should be in the FOMC’s four hike baseline for 2016.”

“We see a fairly easy path to a second hike in March. We expect growth to remain above trend and employment gains to remain well above the “breakeven” rate. Most importantly, inflation is likely to rise by March as sharp declines in energy and health care prices drop out of the year-on-year calculation, supporting the Fed’s expectation that inflation will pick up as transitory pressures fade.”

“Looking beyond March, a standard reaction function coupled with the Fed’s economic projections calls for a roughly 125bp increase in the funds rate by end-2016. While the FOMC’s preference for a “gradual” path of hikes suggests that four is most likely, the economic case for the full 100bp hike implied by the …read more

Source:: FX Street