VIEW: Goldman On FOMC Dec Meeting Minutes

In the wake of the release of the FOMC’s December meeting minutes Goldman Sachs noted that ““most” participants judged that the economy could reach maximum employment “relatively soon if the recent pace of labor market improvement continued,” and “several” participants noted that “they viewed labor market conditions as already largely consistent with maximum employment.” “Some” participants noted that it could be appropriate to raise the federal funds rate “before maximum employment had been fully achieved,” for example “if inflation pressures and inflation expectations were moving materially and persistently higher.” These comments seem consistent with our forecast of a rate hike in March.”

• “The December FOMC minutes indicated that participants continued to view mid-March as an appropriate end date for net asset purchases.”
• “The minutes also noted that “some” participants said that it could be appropriate to start runoff “relatively soon after beginning to raise the federal funds rate” and “many” participants judged that the appropriate pace of balance sheet runoff would likely be faster than last cycle. In our view, today’s minutes increase the chances that the FOMC might be ready to reach a decision on the runoff process and issue new normalization principles in the second quarter, which could mean that runoff begins somewhat earlier than our standing assumption of Q4. We still expect that the start of runoff will substitute for a quarterly hike, so that the FOMC would still hike 3 times total in 2022 if runoff begins in Q3, but an earlier announcement of the start of runoff would be somewhat less likely to substitute for a hike than one that comes toward the end of the year.”