Tags: Goldman Sachs | Federal Reserve | Jan Hatzius | Janet Yellen

Goldman's Hatzius: Fed Won't Raise Rates Until December at Earliest

By    |   Thursday, 18 June 2015 12:46 PM

The Federal Reserve is most likely to start raising interest rates in December after it sees signs of a stronger economy, according to Goldman Sachs Group Inc.

Before yesterday, the bank had forecast the Federal Open Market Committee would raise rates in September — the first hike in nine years. But Fed Chair Janet Yellen on Wednesday provided a lukewarm assessment of the U.S. economy, said Jan Hatzius, chief economist at Goldman Sachs.

“We had viewed a clear signal for a September hike at the June meeting as close to a necessary condition for the FOMC to actually hike in September,” he said in a June 17 report obtained by Newsmax Finance. “The committee did not lay that groundwork today.”

The Fed has kept interest rates near zero percent since 2008 in an attempt to help the U.S. economy bounce back from its deepest decline since the Great Depression. That job-killing recession was triggered by the collapse of a housing bubble that the Fed helped to pump up with cheap money.

Hatzius said the most important indicator of the Fed’s timing for a rate hike is a dot plot graph of forecasts by members of the monetary policy committee.

“The number of FOMC participants projecting one hike or less this year rose from three at the March FOMC meeting to seven today,” Hatzius said in the report co-authored by Goldman Sachs economist Zach Pandl. “Our best guess is that Fed Chair Yellen now anticipates only one increase this year — an important shift in the committee’s center of gravity.”

Ethan Harris, chief economist at Bank of America Merrill Lynch, also said Yellen likely is among the Fed committee members who forecast a single rate increase this year.

“In our view, Rosengren, Brainard, Tarullo, Dudley, Lockhart, Powell and Yellen are likely candidates for the one hike group,” Harris said in a June 17 report to investors. “It is impossible to know for sure, but the Chair may be one of the ones.”

Yellen’s remarks came after the Fed published its scheduled policy statement.

“On the one hand waiting too long to begin normalization can risk significantly overshooting our inflation objective given the lags in the operation of monetary policy,” she said. “And on the other hand, beginning too early could risk derailing the recovery that we have worked for a very long time to try to achieve.”

Greece’s ongoing negotiations with its creditors are adding to the Fed’s uncertainty. The country has payments due on about $370 billion owed to European Union countries, the International Monetary Fund and European Central Bank.

“The United States has very limited direct exposure to Greece,” Yellen said. “But to the extent that there are impacts on the euro area economy or on global financial markets there would undoubtedly be spillovers to the United States that would affect our outlook as well.”

Goldman Sachs maintained its outlook for rate hikes after December of 100 basis points a year. It forecasts a Fed funds rate of 1.25 percent-1.50 percent by the end of next year and 2.25 percent-2.50 percent by the close of 2017.

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The Federal Reserve is most likely to start raising interest rates in December after it sees signs of a stronger economy, according to Goldman Sachs Group Inc.
Goldman Sachs, Federal Reserve, Jan Hatzius, Janet Yellen
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2015-46-18
Thursday, 18 June 2015 12:46 PM
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