Investing.com – Even as markets begin to push back expectations for the when and how many times the Federal Reserve (Fed) will raise rates this year due to a batch of weak macro data, Goldman Sachs warned Thursday that investors could be underestimating other factors that suggest that the U.S. central bank will move ahead with policy tightening.
These analysts noted that market pricing of future hikes had recently declined on the back of weaker growth and inflation data, signs that the Fed may pull forward its balance sheet normalization and a reduced optimism on fiscal easing measures being implemented by the Trump administration in the near future.
Fed fund futures pushed expectations for the first rate hike back to July from June and dropped the likelihood of two increases this year to around 27%, according to Investing.com's Fed Rate Monitor Tool.
“But markets may be underestimating three factors pointing towards continued steady hikes,” these experts warned in an update on the Fed:
1. Despite a higher funds rate, our FCI (financial conditions index) has eased in recent months as global growth now looks more resilient than earlier in the cycle.
2. Not only the growth-positive aspects of the Trump agenda but also the growth-negative aspects –especially the specter of protectionism- have receded in recent months.
3. Labor market slack has now largely evaporated even when we measure it very broadly.