SLL claimed no special insight into the Federal Reserve’s decision making this past week (“Who Cares?” SLL, 9/16/15), but instead went with Goldman Sachs, who seems to have all sorts of special insight. Goldman got it right with its call, made back in June, that the Fed wouldn’t raise its federal funds target rate. Now Goldman is saying wait until next summer for a rate increase, if one comes at all, and not wanting to abandon a winning strategy, SLL will go with that. Tyler Durden, at zerohedge.com, says that means there will be no rate increase because the Fed won’t raise rates that close to an election, and besides, the economy will be in recession by then. SLL says there’s a overwhelmingly good chance Durden will be right. From Durden at zerohedge.com:
Several days before Thursday’s FOMC meeting, we asked rhetorically whether “Yellen is about to shock everyone”, and lo and behold: everyone was quite “shocked” when instead of a hawkish hold or a dovish hike, Yellen proceeded with the loosest possible decision: keeping ZIRP indefinitely, crushing both the Fed’s credibility and its market “communication” strategy in the process, and sending the market tumbling. That said, not everyone was shocked – as we also reported one bank made the explicit case not only for no rate hike but for further easing – as first reported here last weekend, “Goldman said The “Fed Should Think About Easing.”
This is what we added last weekend:
What one should most certainly pay attention to, however, is what Goldman says the Fed will do – you know, for “risk management” purposes – because as we have shown countless times in the past, Goldman runs the Fed.
As such, forget a September rate hike. Or perhaps Yellen will listen too carefully to Hatzius and instead of a rate hike, shock absolutely everyone, and instead of a rate hike the Fed will join the ECB, SNB and Riksbank in the twilight zone of negative rates. That, or QE4.
And why not: after both the Swiss National Bank and the Chinese central bank crushed investors who thought the banks would never surprise them, why should the Fed not complete the 2015 trifecta of central bank turmoil? After all, the money printers are already running on “faith” and credibility fumes. Might as well go out with a bang.
Not only is this precisely what happened (yes, the Fed gave its first ever NIRP hint ever) but more importantly, we got the latest confirmation that when it comes to policy, anything that Goldman wants, Goldman gets courtesy of a few clueless lifetime academics in charge of the US money printer.
With that out of the way, the only question that remains is not what will the Fed do, but what Goldman tells the Fed to do in 2015, or rather in 2016, because according to Jan Hatzius’ latest note, one can forget about a hike in October or December, and instead focus on 2016, or rather the summer of 2016.
To continue reading: Goldman Calls It: No Rate Hike Until Mid-2016
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