Fed losing forecasting edge changes game in markets – Goldman Sachs

In a weekend note, Goldman Sachs Economists Jan Hatzius and David Choi pointed out that according to their study, the risky assets such as the stock markets are reacting more strongly to the hawkish monetary shocks from the US Federal Reserve (Fed).

Key Quotes:

“The reason, ironically, is that the Fed is losing its forecasting edge.

The Fed’s relative predictive advantage versus private economists has declined in recent years as the higher quality and quantity of forecasters makes it harder for anyone, including Fed staff, to beat the “wisdom of the crowd”.

It also means that after hawkish monetary shocks, such as a surprise rate hike or indication of higher rates, markets tend to react more negatively and consensus growth forecasts now decline.”