Janet Yellen’s first decision as Fed chief was perceived to be somewhat hawkish yesterday for two reasons.
One is that the “dots” the charts showing when various FOMC members foresaw the first rate hike saw a slight shift to the left, meaning the first rate hike is now expected somewhat sooner than before. Also, Yellen used the term “6 months” to describe what a considerable period of time might be, when asked about the gap between the end of QE tapering and the start of the first rate hike.
But Goldman’s top economist Jan Hatzius doesn’t see a rate hike in 2015.
Here’s why, according to a new note that just went out:
…we still think that rate hikes are far off. First, we do not think that Yellen meant to send a strong signal of a shift in the reaction function. Second, while we agree that the most likely path for growth is a pickup to a 3%+ pace, the risk to this forecast is on the downside. Third, we expect a more gradual return to 2% inflation than the FOMC. Fourth, we see a significant risk that a tightening of financial conditions in the run-up to the first rate hike will delay the first hike, much as last summer’s “taper tantrum” delayed the actual move to QE tapering.
Our central forecast for the first hike remains early 2016, although the risks now tilt in the direction of a slightly earlier move.
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