Goldman Sachs has said that it expects the US Federal Reserve to raise interest rates in December 2015, despite industry commentators suggesting this might be delayed due to disappointing economic data from Asia.
It comes after several weeks of extreme volatility in the world equity markets triggered by a wave of disappointing economic data from China.
In a report released to clients at the start of September, Goldman analysts stated that the volatility throughout August and into September was “quite exceptional….outside recessions.”
They stated: “Thus was related to a weaker than expected set of activity data out of China and the shift in FX policy by the country’s authorities which shook investors’ confidence in their ability to deliver a soft landing.”
The three analysts added that they had noticed government bonds had been a poor hedge against falling stocks over the summer because they were “expensive to start with”.
They analysts added that they now believe that the Federal Reserve will hike rates at the 16 December FOMC meeting.
“…and then to increase policy rates by a cumulative 125bps by the end of 2016. We expect the two to 10 year slope of the US Treasury curve to steepen over the next three months to around 175 bps.”