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."

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