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Prior to yesterday’s FOMC meeting, Goldman’s Jan Hatzius was one of the most confident that the Fed would do QE.It didn’t.
Now Hatzius doesn’t see any QE on the imminent horizon.
This is what he said in a note this morning:
…the hurdle for additional balance sheet action in the next few months appears to be quite high. The fact that the FOMC took a “substantive” easing step today probably makes another easing move in the near term relatively unlikely. The reason is that the FOMC has not employed its unconventional tools in the same continuous fashion in which it used to move the funds rate. Chairman Bernanke today justified this strategy by saying that unconventional tools “by their nature…tend to be lumpy.” Although we do not see an obvious economic reason for why unconventional tools could not be used in a more continuous fashion, the chairman’s view implies that today’s action raises the bar for an additional easing move involving the balance sheet in the near term.
OK. So Goldman sees the Fed on hold, and now today we got all kinds of bad economic data.
Let’s run it down:
- Chinese flash PMI was quite weak.
- Eurozone-wide PMI continues to dive.
- The German economy is cracking.
- The Philly Fed was ugly.
- Initial claims continue to tick up.
- Existing home sales missed on expectations.
Oh, and plus there’s a big Moody’s bank downgrade likely coming.
Oh and beyond that, Goldman advised clients to go short.
So it’s an ugly day.
In addition to the equity selloff (Dow off over 200) gold is really getting clobbered, and oil is tanking.
This kind of hard swing down in the commodities is consistent with a Fed not inclined to inflate, and an economy going off the rails.