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Home / Business / Goldman Sachs, IIF on market reaction to Fed interest rate cuts, comments Powell

Goldman Sachs, IIF on market reaction to Fed interest rate cuts, comments Powell



The underlying message from the Federal Reserve – after it cut interest rates Wednesday – may not be as hawkish as many investors had interpreted it to be, according to the chief economist of the Institute of International Finance.

Stocks in the United States fell after Fed chairman Jerome Powell suggested that policy makers were not embarking on a new cycle of interest rate cuts. The 25 basis points cut on Wednesday marked the central bank's first policy relief in more than a decade.

But Robin Brooks, CEO and chief economist of IIF, suggested that the central bank could not do with cutting interest rates.

"I think the alignment language between the steering bike used by the Chairman Powell is important," Brooks pointed out. "The mid-cycle adjustments that we saw in & # 39; 95 & # 39; 98 were 75 basis points each ̵

1; so three cuts each. And I think it's actually pretty close to what the market priced into this meeting."

So, the central bank's move and Powell's comments Wednesday aren't "much of a hawkish surprise at all," Brooks told CNBC's "Squawk Box" Thursday.

"My basic point here is: I think the markets here need to relax and the underlying theme is more proficient than … markets perceived."

Traders and financiers on the floor of the New York Stock Exchange on December 27, 2018.

Drew Angerer | Getty Images

Brooks also pointed to the Fed's so-called dot plot, which is a visual and anonymous representation of where US central bankers believe interest rates will go in the short, medium and longer term. He noted that seven out of 17 of the projected interest rates would fall by 50 basis points this year.

The fact that "a large group of seven people" expected two interest rate cuts in 2019, "kind of got lost in the comments" that followed the Fed's latest move, Brooks said.

Brooks is not the only economist to suggest that the US central bank could lower interest rates even further. Goldman Sachs analysts wrote in a note Wednesday that they "see an 80% cumulative probability of another cut at some point this year."

"The markets have priced a much deeper cut cycle and taken today's news as somewhat hawkish," Goldman analysts said. They said Powell's comments are "in line with our expectation that relief will end" by a 25 basis point second.

See: Feds Powell Defends 25 Base Points Cut During News Conference


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