In its preview for the FOMC September meeting on Wednesday, Goldman Sachs Group (NYSE:GS) takes a different view from the one shared by many market participants who expect the FOMC to remove or substantially modify its forward guidance that the funds rate will stay at its current level for a “considerable time after the asset-purchase program ends.”
On its own, a removal of “considerable time” would be a big hawkish shift that, according to GS, might be warranted if the news about the recovery had changed substantially, but that is not the case.
"Indicators of output growth such as real GDP and the ISM have improved, but labor-market improvement has slowed, inflation has come back down and financial conditions have tightened a bit. Consistent with this, we see few signs that the center of the committee has moved its liftoff date forward from mid-2015," GS adds.
Instead of this shift, GS believes there is a better plan that should be acceptable to many proponents of more data-dependent guidance.
"Under this plan, the committee would keep the existing guidance in place this week. It would drop the phrase “after the asset purchase program ends” but keep the “considerable time” language in October, provided the recovery continues to match expectations. And it would then decide in December whether to extend the guidance further, move to weaker wording such as “patient,” or go a more data-dependent route," GS projects.