Investing.com – Though Goldman Sachs continued to be upbeat on the American economy in 2017 and reiterated their expectations that the Federal Reserve (Fed) will hike rates three times this year, they admitted that some of the weakness seen Friday’s employment report reduced the odds for a first move to come in March.
The median forecast from the Fed last December called for three rate increases this year, though markets have been more skeptical, pricing in only two moves.
Goldman Sachs chief economist Jan Hatzius said that January’s employment report, released on Friday, was “generally encouraging” and suggested that the U.S. was entering 2017 with “good amount of momentum” that made him believe that this year would be stronger than 2016.
Hatzius noted that Goldman was expecting growth to rise to 2.25% in 2017 from the prior year’s 1.5%.
On that note, Hatzius stated that “the jobs report was a little mixed as far as implications for the Fed are concerned.”
He noted the upticks in the jobless rate and the broader underemployment rate, known as U6, coupled with the wage increases coming below expectations.
“All of that says to us that a March hike has become less likely,” Hatzius said, noting that Goldman had reduced the odds for policy tightening at the next meeting to 15%.
However, Hatzius indicated that the cumulative probability of a rate hike by the June meeting was still 80% and they still expect three moves in June, September and December.
According to Investing.com's Fed Rate Monitor Tool, Fed fund futures price in a March move at a probability of only 9%.
Markets appear to broadly agree with Goldman, placing the odds of a move at the June meeting at roughly 63%.
However, the chance for a second rate hike does not pass the 50% threshold until the December meeting with the odds for three moves by the end of 2017 at only 31%.