Goldman Sachs: Democratic Sweep Could Pull Fed Liftoff Forward

Goldman Sachs note that "markets currently appear to be pricing Fed liftoff in late-'24/early '25, consistent with our "status quo" projections. With the elections drawing close polling has been remarkably stable for the past few months. In the event of a Democratic sweep in the upcoming elections, an expansionary fiscal stance would become much more likely - our economists note that simulations suggest even a dialed down Biden agenda could result in liftoff occurring around mid-2023 rather than early 2025. Given this possibility, we recommend taking profits on our 2y2y payer recommendation, and instead adding 1y2y/3y2y OIS steepeners; the front leg of the steepener is within the period of the Fed "dot plot" which indicates that most FOMC members do not anticipate hikes through 2023. While an outright 3y2y short may perform better in a sweep scenario, the steepener has a better risk/reward trade-off in our view, particularly if markets initially trade with a risk-off tone, or if the election results are delayed for an extended period."