Goldman Sachs: Aim Higher

Goldman Sachs note “for FX markets, the main takeaway from the FOMC meeting should be that the Fed acknowledged that “restrictive” is a moving target, and the balance of recent data suggests that target is moving higher still. This matters because policymakers in other jurisdictions have not come close to matching that tone.”

• “In recent weeks, we have argued that there is a building case for policy divergence in the USD’s favour ahead. Following some pivotal policy decisions in recent weeks, we now think this has moved from a risk scenario to the most likely path.”
• “The recent run rate of U.S. payroll growth is hardly recessionary, in our view. Also, a growing camp of other central banks has cited developments in the housing market and mortgage costs as a justification for doing less, but the much-reduced prevalence of variable rate mortgages makes the U.S. less vulnerable to this particular issue).”
• “Instead, broader financial conditions are usually more important for U.S. growth, and much of this should have already passed through: while 80% of the policy rate hikes have come since mid-June, 75% of the FCI tightening took place before then.”