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Goldman Sachs says it's too early for the market to bet on a full Fed pivot

Yahoo Finance Live anchors discuss Goldman Sachs’s note on market expectations for Fed policy.

Video Transcript

- Let's also talk about a Goldman note that's been out over the weekend. Goldman Sachs ahead of this week's Fed minutes highlighting the Fed's pivot and questions whether a large shift in the Fed policy rate profile will be enough to support a reliable bottoming in risk assets. There you're taking a look at the target rate. This would be the target rate post this upcoming meeting.

And particularly here for what Goldman Sachs is noting and largely the questions that many of us have had is the economic data that we've seen come through over the past week on the CPI data front as well as on producer price index. Is that enough to have them soften their outlook? Or does that just mean some of the steps policy wise that they've taken thus far are finally fully being ingested, or at least starting to be ingested as well by the economy?

- Yeah. I mean, let's drop a real time Yahoo U here because I think investors are going to hear a lot of what is called a dovish pivot. Now, if you are not an investor, you would have no idea what this even means. Essentially what it means is the Federal Reserve might become a little more friendlier on the path of their rate hikes in coming months. Now, that's basically what this boils down to.

But I like what Goldman said in this note here. And that is Vicky Chang is the author of this report that for the correction to really end in the markets, for markets to really rally, the market has to get a sense the Fed is not just done raising rates, they have to start cutting rates. And there's no indication that's happening.

- Traditionally, she said.

- Traditionally.

- Traditionally, she said that's when the market turns. She's not clear that is what is-- that we're going to follow that playbook this time around. Another way to describe the pivot is when you go from tightening to easing, right. You go from raising rates to stopping or even cutting rates, right. And we are not there yet, even though the market is predicting we are going to get there. We haven't seen the actual signs of that happening, right.

And when we talk about economic data, I just want to mention one relatively minor data point that came out this morning when we're looking at the big economic picture, and that's empire manufacturing. Manufacturing in the New York region really showing a weak reading here, a -31.3. The prior reading was 11.1. You flagged this for us this morning, Sozz. And the survey was for a reading of 5. So a -31.3.

Now, as you pointed out, Brad, the other economic data we've gotten recently has been pretty darn good. So this is one region. Could be an outlier. Could it be a reflection of what we have been seeing in terms, again, going back to the inventory question? Maybe. It's just one data point. So we'll see. But it's not a great one.

- It's also been interesting to hear just about the employment situation from the private sector versus what the Fed is reading into right now as well and where particularly going forward from here in the upcoming jobs reports even that we get, even though the last one was strong and perhaps unexpectedly as strong as it was, where the Fed from here continues to lean into the employment situation side to say, OK, well, we still have a lot of room to go, or at least wiggle room to work with, even if the employment situation holds strong, even if some of the efforts that we've made thus far are starting to be priced in not just to the markets or ingested by the economy separately as well.