VIEW: Goldman: Looking Ahead To A Slower Pace But A Higher Peak

The weekend saw Goldman Sachs note that “the FOMC is set to deliver a fourth 75bp hike at its November meeting, raising the target range for the fed funds rate to 3.75-4%. The focus will be on what comes next, and we expect Chair Powell to hint that the FOMC will likely slow the pace to 50bp in December.”

• “We expect the FOMC to eventually pair that slowdown to 50bp in December with a somewhat higher projected peak funds rate in the December dot plot. We are adding another 25bp hike to our own forecast - which now calls for hikes of 75bp in November, 50bp in December, 25bp in February, and 25bp in March - and now see the funds rate peaking at 4.75-5%.”
• “We see three possible reasons why the FOMC could end up hiking past the February meeting. First, inflation is likely to remain uncomfortably high for a while, which could make continuing to hike in small increments the path of least resistance. Second, more rate hikes might be needed to keep the economy on a below-potential growth path now that the fiscal tightening has mostly run its course and real income is growing again. Third, the FOMC might need to do more if a future pivot causes a premature easing of financial conditions.”