LIVE MARKETS-What Goldman thinks happens if the Fed eases more quickly

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WHAT GOLDMAN THINKS HAPPENS IF THE FED EASES MORE QUICKLY

Analysts at Goldman Sachs, on Monday, changed their Fed forecasts to include three cuts this year, and also pushed out a piece looking at what that might mean for markets.

Clearly it depends a bit on why the Fed cuts, and they outline four scenarios taking that into account.

Firstly, if we get a dovish policy shock that lowers short-dated yields, but doesn't do much to growth - say inflation continues to be better than expected - they think equities rise, yields fall, the curve steepens and the dollar weakens against most currencies.

Secondly, if the Fed cuts because growth expectations fall, then yields fall, but so do stocks, and the dollar is more mixed, but loses ground on safe havens.

Thirdly, if we get both - lower inflation, and a growth shock - U.S. equities fall modestly, yields fall by more than in the previous two scenarios, the curve steepens, and the dollar weakens across the board.

Lastly, if we get a move dovish Fed and a rise in growth expectations, risk assets rally, yields move less, and the dollar weakens, mostly against cyclical currencies.

(Alun John)

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