Goldman: Still Early To Fade Fed' '24 Rate Cut Pricing, Receive 1y OIS

Late Friday Goldman Sachs noted that “despite not making any changes to policy (or it's hiking bias), the Fed communicated a hawkish stance via its SEP, and in Powell’s post meeting press conference.”

• “Although investors “learn” from the Fed dot plot surprises, there appears to be flow of information in the opposite direction as well (at a different horizon), and potentially common macroeconomic factors driving both.”
• “We find that averages from the dot plot have historically served as an anchor for investors' modal views of front-end rates, and so long as policy is viewed as restrictive, both investor expectations and market pricing are likely to remain below this modal outlook.”
• “In our view, the current modestly positive risk premium is unlikely to reprice further upwards over the next few months.”
• “Rather than fading cuts in the back half of 2024, with markets taking the Fed’s higher for longer message to heart and pricing very little easing from current levels over the next year, going long offers relatively cheap downside protection.”
• “To be sure, an additional Fed hike in November poses a risk, but receiving 1y OIS, which likely embeds positive risk premium that is rare at the front end at this stage of the cycle, offers a buffer.”