Goldman Sachs Looking for FOMC to Delay Raising Rates

In a note out last night, Goldman Sachs Chief Economist Jan Hatzius now looks for the FOMC to hike rates in December, a change from his previous forecast of a September rate increase. The forecast change was predicated mainly on the fact that the number of FOMC participants projecting one hike or less this year rose from three at the March FOMC meeting to seven at yesterday's June meeting. While he states he cannot be certain, he also feels that Chairwoman Yellen is one of the seven looking for only one rate increase this year. Mr. Hatzius also stated that the FOMC did not provide any clear signal of a September rate hike, a condition he feels is necessary before an actual rate hike. A hike in September could become the baseline case if inflation data or business activity picks up considerably over the next few months. That said, Mr. Hatzius feels a December rate increase is both more likely and better policy than a September increase. Beginning in 2016, Goldman Sachs looks for the FOMC to raise rates by 100 bps annually, with the Fed Funds rate reaching 1.25-1.50 percent by the end of 2016 and 2.25 to 2.50 percent by the end of 2017. Terminal Fed fund rates are expected to peak at 3.50-3.75 percent in early 2019.