On one hand, every economist, virtual portfolio manager, Yahoo Finance Twitter expert, and TV talking head is certain that a September rate hike is inevitable.
On the other hand, the bank that runs the NY Fed (and whose chief economist Jan Hatzius has dinner with NY Fed head Bill Dudley at the Pound and Pence every other month), Goldman Sachs is doubling down on its call that the Fed will not hike in September.
We’ll go with Goldman (only because in this case it really is a dumb vs dumber moment).
Incidentally, here is Hatzius in January 2014 predicting “above-trend growth” for the US (and “for what it’s worth”, Joe Wisenthal naturally agreeing with him).
So here, without further ado for those who still care about this most farcical of discussions, is Goldman’s Jan Hatzius with seven reasons why Yellen will delay. Again.
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From Goldman’s Jan Hatzius
Shouldn’t Be Close
1. We do not expect a rate hike at the September 16-17 FOMC meeting. This call was originally based on our interpretation of the June “dot plot” and Chair Yellen’s July 10 speech, which suggested to us that her own expectation was liftoff in December, not September. If this interpretation was correct at the time, and if we are right in assuming that Yellen’s views are ultimately decisive, the key question is how the economy and the financial markets have performed relative to her expectations of 2-3 months ago. If developments have beaten her expectations, it is possible that she might now support a hike. In contrast, if developments have been in line with or weaker than her expectations, she will presumably resist a hike.
2. Even if we focus only on the economic data, it is difficult to argue that developments have beaten expectations. Although growth has been decent and the labor market has improved further, both wage and price inflation have fallen short of consensus expectations. Our wage tracker stands at just 2.1% as the Q2 employment cost index surprised on the downside, and core PCE inflation just made a four-year low of 1.24%. Moreover, the notion that the weakness in core inflation is principally due to the temporary effects of a stronger dollar and lower commodity prices does not look right; core PCE goods inflation, where such effects should be concentrated, is only 0.4pp below its 20-year average, a gap that is worth just 0.1pp for the overall core PCE index. This suggests that most of the inflation shortfall relative to the Fed’s 2% target is due to more persistent factors, including continued labor market slack.
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