The Fed will wait after the elections and then go back up, predicts Goldman

It will be after what promises to be a controversial presidential election between a Democratic challenger and President Donald Trump, who is a fierce critic of the Fed and who called a week ago for rate cuts and a increased quantitative easing.

"The Fed has increasingly been under the spotlight of politics," wrote Hatzius and his colleagues. "A thorough political review of monetary policy decisions is likely to further reduce the likelihood of a rate hike over a presidential election year until the end of elections."

Goldman also expects a further increase in 2021.

Goldman cites other reasons for a likely pause in the interim, including an economy that has performed better than expected this year, easing the need for a cut and keeping inflation under control, making any tighter action unnecessary.

In fact, Goldman also raised its GDP growth forecast for the second half to 2.5% and its first half 2020 figures to 2.25% and 2% for the second half of 2020 and the first half of 2021. 2019 was expected to oscillate around 2% and the next two years to around 1.5%.

"The downside risks to the outlook earlier this year eased as growth progressed and the Fed pivot reversed much of the previous fiscal tightening," said Hatzius. "Although the increases have become less likely in the short term, we continue to think that the next move is much more likely to be a rise than a reduction."

Futures market prices consider things differently.

Although traders have adopted a less accommodating mentality, they still anticipate a 42% rate reduction probability before the end of the year. Further pricing suggests a long-term financing rate of about 1.95% by the middle of 2021, suggesting two cuts in the current target range from 2.25% to 2.5% .

White House economic advisor Larry Kudlow said Thursday that rates "may never rise again in my life". Former Fed Chairman Alan Greenspan laughed, "Say it again … do not hold your breath on it."

Goldman economists believe that financial conditions will continue to improve, but not enough to spur inflation and prompt the Fed to raise rates quickly. However, they speak of a "very gradual tightening" after the elections.