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Goldman says chance of Fed rate hike in March now below 50%

Hong Kong

GOLDMAN Sachs Group Inc expects the Federal Reserve to raise interest rates this month, but said the proba-bility of a follow-up move in March has fallen to slightly below 50 per cent.

Holding in March would likely coincide with a volatile period for markets as the 90-day trade war truce between the US and China is due to end at the start of that month, chief economist Jan Hatzius wrote in a Dec 9 note. Even so, there's still a good chance that the Fed hikes in March given a positive fiscal impulse and a funds rate that remains in neutral territory.

"We emphasise that this is a close call," Mr Hatzius said. "Moreover, our forecast of no hike assumes that the median number of 2019 hikes in the December dot plot moves down from 3 to 2; if the median instead stays at 3 hikes, the probability of March would increase again."

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Overall, Goldman expects the US economy to grow above trend through most of 2019, unemployment to fall further below the Fed's estimate of its longer-term level, and wages and prices to gradually move higher - meaning the Fed will continue to tighten.

"We therefore think that the storm will pass and this will keep Fed officials on a normalisation path, albeit a more tortuous one than up to now," Mr Hatzius wrote. BLOOMBERG