When it comes to Goldman’s reaction (function) to the Fed’s own reaction function, so to speak, it has been a love-hate, but mostly confused, relationship over the past three months.
First, back in March, Goldman’s Jan Hatzius was stunned to note that the market reaction following the Fed’s first rate hike was not the reaction the Fed wanted, when “the Fed’s 0.25% rate hike had the same effect as a 0.25% race cut” and prompted it to ask if Yellen has lost control of the market.
Two months later, in May Goldman once again wondered of the Fed has lost control of a market, where financial conditions have become progressively “easier” the higher the Fed Funds rate rose. It then added that “we find that the sensitivity of financial conditions to monetary policy shocks has been quite high recently, at least when we identify these shocks using bond market moves around FOMC meetings. This suggests that the easing of financial conditions is due to other factors.”
This post was published at Zero Hedge on Jun 28, 2017.