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Goldman Ups Terminal Rate View 25bp On "Hawkish Commentary"

ECB

Goldman Sachs has added a 25bp June ECB hike to its existing expectation for a 50bp raise in March and 25bp in May, and now sees a terminal rate of 3.50%.

  • The change in view is based on recent "hawkish commentary", pointing out in particular Schnabel's comments last Friday "setting out a significant hurdle to step down to 25bp in May", with Lane and Panetta not pushing back strongly around a higher terminal rate, and Villeroy's implicit endorsement of a 3.50% terminal rate.
  • Goldman's own assessment of the Eurozone economy also led to the changed view, including "our above-consensus growth forecast, recent analysis of labour market resilience, sticky services inflation".
  • Given the recent ECB commentary, Goldman says a fourth consecutive 50bp hike in May "remains a live possibility", "it is more than likely" that the pace slows to 25bp.
  • Goldman also points out that this changed view follows a 25bp increase in Fed terminal hike expectations, with an additional 25bp hike in June, to a 5.4% peak.
  • Markets are currently pricing in a 3.70% terminal rate in Sept.
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