Goldman Says We’ll Be Right Eventually As FOMC Doesn’t Deliver

Goldman says we’ll be right eventually after yesterday’s FOMC decision didn’t bring what the firm was expecting, namely a change in language indicating that interest rates will stay low for a longer period of time instead of the current late 2014 phrase.

Here’s what Goldman Sachs said before the FOMC: We expect an extension of the current “exceptionally low…at least through late 2014” interest rate guidance to “mid 2015.”

Now Goldman pushes this prediction further out for the FOMC September meeting, here are some points of their post FOMC reaction: The FOMC announced no new policy measures today and made only a few small but important changes to its policy statement. The statement did reflect the generally weak tone of economic data since the previous meeting in late June.

Most importantly, Goldman says that the final sentence of the statement suggests a strengthening of FOMC’s “easing bias”: Whereas before the statement indicated the FOMC’s willingness to “take further action as appropriate to promote a stronger economic recovery”, the sentence now reads “The Committee will closely monitor incoming information…and will provide additional accommodation as needed to promote a stronger economic recovery”.

Goldman’s conclusion? Same as their forecast for yesterday’s FOMC, an indication that interest rates will stay low longer then the late 2014 phrase: Our interpretation of the forward-looking language in today’s statement – especially the phrase “will provide additional accommodation as needed” – is that some form of monetary easing at the September 12-13 FOMC meeting is the current baseline. We believe a small easing step – most plausibly a lengthening of the forward rate guidance – is the most likely outcome for September 13, with asset purchases financed by renewed balance sheet expansion following in late 2012/early 2013.

Markets are trading not much changed since my previous article, the Dow Jones is trading at 12,933, some 30 points below its pre FOMC price. The Eur/Usd is trading at 1.2257, around 33 pips up on the day but still well below its pre FOMC price.

In Aussie news yesterday, Australian retail sales came out lot better then expected at 1% versus exp 0.6% and its trade balance came in at +9 million, the expectation was for a deficit of 360 million Australian dollars. The Aussie was trading at 1.0454 pre release, and gained over 30 pips on the news. It is now trading at 1.0483. Since the report came out, the Australian dollar also gained 24 pips against the Kiwi, now trading at 1.2942.

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About Fx_Livermore

Fx_Livermore has over seven years experience in forex trading. He uses a mix of technical and fundamental analysis in his trading. His posts should not be taken as trading advice/recommendation to buy/sell any currency/security.

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