The FOMC may have cut its rate hike forecast from 4 to 2, following by an even more dovish speech by Janet Yellen, but Goldman is convinced the Fed is wrong. As a result, after looking at today's payrolls report, its chief economist Jan Hatzius said that "we ultimately think the committee will move faster than the two-hike pace implied by the latest “dot plot”, despite the dovish signals from the March meeting and Chair Yellen’s remarks this week" and that "we continue to expect the FOMC to raise rates three times in 2016."
This means rate hikes during all the upcoming FOMC meetings that have a conference: June, September and December.
Here is the full note:
Another Solid Employment Report
BOTTOM LINE: Nonfarm payroll employment rose by a solid +215k in March and the household survey’s measure of employment rose 246k. The unemployment rate rose to 5.0% due to a one-tenth increase in the participation rate. Average hours were unchanged while average hourly earnings rose 0.3%. We have made no changes to our Fed call, and continue to expect the FOMC to raise rates three times in 2016.
MAIN POINTS:
1. Nonfarm payroll employment increased by 215k in March (vs. +205k consensus), a slight deceleration from an upwardly revised +245k in March. Employment gains were relatively broad-based, led by solid gains in service sector jobs (+199k). Warmer than usual March weather may have provided a slight boost to sectors most sensitive to weather: construction (+37k) and leisure and hospitality (+40k) employment were both firm. The other goods-producing sectors of the economy were slightly softer, as manufacturing (-29k) and mining and logging (-12k) continued to shed jobs in March. Government employment rose 20k.
2. Average hourly earnings rose 0.3% in March (vs. +0.2% consensus), raising the year-on-year growth rate to 2.3% from 2.2%. Aggregate weekly payrolls—the product of employment, average hourly earnings, and average weekly hours—rose 0.4% on the month as the average workweek held steady at 34.4 hours while average hourly earnings rose 0.3% (mom).
3. The household survey showed a gain in employment of 246k in March, following an increase of 530k in February. Despite the strong gain in employment, the unemployment rate rose to 5.0% (5.001% unrounded) due to a one-tenth increase in the labor force participation rate to 63.0%. The participation rate has now risen 0.6 percentage points since September. The U6 underemployment rate rose to 9.8% from 9.7% due to the entrance of new job seekers to the labor force.
4. We have made no changes to our Fed call, and continue to expect the FOMC to raise rates three times in 2016. The economy is close to full employment and growth continues to hold up well, financial conditions have eased substantially since earlier this year, and core inflation has firmed. Thus, we ultimately think the committee will move faster than the two-hike pace implied by the latest “dot plot”, despite the dovish signals from the March meeting and Chair Yellen’s remarks this week.