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Goldman's Hazus says Powell won't go all in on Jackson Hole rates

(Bloomberg) – The message from the markets last week was that Fed Chairman Jerome Powell would channel his inner Paul Volcker in Jackson’s speech and deliver a massive, crushing The fire and brimstone of inflationary hikes. Pit on Friday.

Not so fast, say Goldman Sachs Group Inc. (NYSE Code: GS). Chief Economist Jan Hatzius.

“I think he’s going to make a case, like he did in the last press conference, to slow the pace of growth. We have two 75 basis point move. Barring a major data surprise, our expectation is 50,” Hatzius told Bloomberg Television’s Monitor on Tuesday. . “I don’t think he’ll be specific about the number, but I do think he’ll say there’s a risk of over-tightening, so it would make sense to be a little bit slower than a big increase.”

Investors may Will follow Hatzius’ point of view. Stocks held steady Tuesday, even though the S&P 10 was still down nearly 4% from a week ago . U.S. Treasury yields fall, but 10 annual yields remain at 3 after 2022 nearly doubled %nearby.

Hatzius is not suggesting that Powell will suddenly switch to the famously dovish monetary policy 1970 Fed Chairman Arthur Burns Burns blazed the trail for his successor, Volcker, to keep raising rates until inflation moderates. Goldman Sachs economists said. “Inflation is too high. They are very committed to bringing it back down to 2%.”

The central bank has raised the overnight lending rate from near zero to 2.5% four times this year In response the US is still at a high inflation rate of 8.5%, the fastest pace since 1980s. But Hatzus said the central bank needed to take “balancing action” by raising interest rates enough to lower the prices of goods and services without pushing the economy into recession.

“We’ve been in the soft landing camp,” he said. “It’s going to be a slowing growth environment. A year from now, two years from now, inflation will be much lower.”

To achieve this, Hatzius expects the federal funds rate to reach “3.5% or higher,” he said. “If you get to two-thirds or a little bit higher, then you stay there. While inflation will be a lot better a year from now, I think it will still be well above target and eventually they do want to get back closer to 2% level.”

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