Time for markets to abandon their dovish perception of the FOMC – Goldman Sachs

Research Team at Goldman Sachs, suggests that relative to the market’s dovish perception of the FOMC, a more positive assessment on the balance of risks around the economic outlook and reaffirming comments from Chair Yellen for a base case of three hikes in 2017 should lead the market to reprice the distribution of risks around the median dot in a more symmetric way.

Key Quotes

“An increase of the median dot for the federal funds rate at the end of 2018 by 25bp (i.e., a move from three to four hikes in 2018) would certainly move market pricing even more in a hawkish direction. Based on our view that the balance of risks around the FOMC meeting is tilted to the hawkish side, we think that the Dollar has more room to appreciate versus all other G10 currencies even from a tactical perspective. This is despite the fact that it has already appreciated approximately one percent (in trade-weighted terms versus all other G10 currencies) since the end of February when the Fed’s leadership began to signal a hike in March.”