This from Goldman Sachs on Fed Chair Powell and the Federal Open Market Committee, some prescient analysis ahead of Powell's comments late NY time
What could make the FOMC speed up the pace of tightening? What would make it pause? And how will the Committee know when it's done?
- While comments from Chairman Powell offer some answers to these questions, the FOMC's decisions to accelerate, pause, or conclude the 1994-1995, 1999-2000, and 2004-2006 hiking cycles offer additional clues
We draw three lessons.
- First, accelerating the pace of tightening would likely require a meaningful inflation overshoot, though faster wage growth would strengthen the case.
- Second, a mid-cycle pause during an ongoing labor market overshoot occurred only in the context of a historic productivity boom that reduced inflation concerns, a condition we are far from today.
- Third, past hiking cycles ended either with growth near potential and an already-restrictive policy stance or with growth already below potential and a roughly neutral stance, in either case reassuring the FOMC that the labor market overshoots at the time wouldn't grow further.
We continue to expect five more rate hikes through the end of 2019, with risks to the upside.
- Chairman Powell's comments and the lessons from past cycles suggest that this risk could take the form of either a faster pace of hiking if inflation surprises to the upside or a longer hiking cycle if growth and the labor market remain stronger than we expect in 2020.
(bolding mine)
