The Fed should not raise 50 basis points in interest rates, says Goldman Sachs’s Robin Brooks

Goldman Sachs strategist Robin Brooks argued that the Federal Reserve should not raise rates by 50 basis points, according to the headline. The transmission mechanism here runs through expectations for the terminal policy rate: a smaller hike would signal that the Fed is nearing the end of its tightening cycle, compressing the rate differential that has supported the dollar and pressuring front-end Treasury yields lower relative to a larger move. Goldman Sachs (GS) shares are exposed through their sensitivity to the curve shape and trading revenues, while rate-sensitive sectors such as regional banks and long-duration growth equities would be most affected by any repricing of the Fed path. Traders should watch the next Consumer Price Index release, since a softer core inflation print would validate the argument for a smaller increment and could drive a sharper move in two-year Treasury yields.

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