Reduction reductions for 2019 are a pipe dream: Goldman Sachs and Deutsche Bank.
It now does two: The main economists in the investment banks Goldman Sachs and Deutsche Bank have warned their customers that the already priced rate hikes this year as markets are so excited about cannot materialize.
To prove their points, the bank economist Torsten Slok and his team ran through the data dating back to 2001, comparing the path to federal funds' interest rates – which reflects Fed's rate hikes and cuts – to futures federal funds rates. They concluded: "The market is almost always wrong with what the Fed will do."
And they asked, "Why would the market be today?" It was a rhetorical question.
Nevertheless, these games are "almost always wrong" about Fed's rate decisions ̵
This chart shows how three interest rates suddenly gained momentum in Fed Fund futures traders at CME, although losing one tad over the past two days (chart via Investing.com):
When preferably, the talkative mongrels on Wall Street can twist something that a Fed governor is saying to a pace cut project they want. For example, the Fed chair Jerome Powell gave a speech on June 4 about long-term issues that the Fed has surpassed. The speech was not related to what the Fed will do over the next meetings. Without context, he sheds this line – "we will act appropriately to maintain the expansion" – into the beginning.
The speed-reduced mongrels took this line as confirmation of the three-short-term expectations. Nevertheless, there was not a single word about any impending price cuts in this speech. The Fed will "act as appropriate" is the standard Fed lingo to describe that the Fed is awake. It can go both directions, walking or cutting.
And then the team at Deutsche Bank came out with this chart (via Bloomberg), titled "The market is almost always wrong about what the Fed will do", comparing what the federal fund price (red line) actually did and what Fed Fund futures trading it would (dotted black lines):
From 2001 to 2004, federal fund futures forecasted that the Fed would hike rates. But the Fed kept cut prices. Then, when the Fed finally started hiking, federal fund futures forecasted all along that it would stop hiking at any time now. Error, error, error. And so on.
Over the years of the ZIRP forecast federal funds futures rate hikes, and were wrong about it until 2016, when the Fed finally started hiking, federal fund futures nailed it short, and then failed and consistently projected far fewer interest rate hikes than the Fed actually completed.
The colored dotted blue line from 2019 into the future shows where the market projects Fed goes. And the Deutsche Bank team observes (in blue): "Why would the market be today?"
In other words, the market is unclear about Fed's interest rate decisions in the future. It has its own reasons to bet on the way it does, but exactly where the Fed moves with the interest rate target is not one of them.
And yesterday it was Goldmann Sach's chief economist Jan Hatzius in a note quoted by CNBC. He familiarized himself with the market's interpretation of Powell's line of action.
Without this line, the speech that was "focused solely on long-term issues at a time of increased concern for trade policy could otherwise have come across as" out of contact "with some market participants, he writes.
" Our opinion was not a strong hint of an upcoming cut, but was only meant to provide assurance that FOMC is well aware of the risks of the commercial war. "
Goldman Sachs expects Fed Governors" to be very careful not to deliver an unconditional hawkic message, but to continue to stress that they will respond to shocks as needed to achieve their mandate. "
Given that the FOMC meeting in June takes place just before the G-20 summit, where Trump hopes to meet China's president Xi Jinping on the sidelines, and the uncertainty surrounding it," the right course of action is to keep the opportunity ", Hatzi writes
He expects the FOMC to downgrade the economic outlook slightly in the June meeting, with a few participants signaling that they can favor price reductions, but that the median forecast of the spot fund's target range for federal fund prices will remain unchanged and that there will be "no signal from Powell that an average is imminent. "
Regarding the rest of 2019, Hatzius writes:" Even though it's a close conversation, we still expect FOMC to keep the fund's interest rate unchanged for the rest of the year. "
But if there are no price reductions, even though the stock market and the Treasury have increased the expectations of two or three interest rate hikes, somebody has to talk down markets gradually – or maybe. And perhaps Goldman Sachs is trying to lay the groundwork.
currently the stock market and the corporate market in la-la-land, look just an economic boom. They clamor for price reductions. But they do not see a rate-cut economy. So why would the Fed read … Here's my prediction: if the Fed doesn't cut rates 3 or 4 times by December 11, Markets to crap comes
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