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Markets take policy-rate-hike cycles in stride - Goldman Sachs

FXStreet (Łódź) - Noah Weisberger, Currency analyst at Goldman Sachs points out that the analysis of over 30 previous developed-market policy-rate-hike cycles leads to believe that they have little impact on markets and they do not lead to recession.

Key quotes

"Even though rate hikes for the US and UK are still not expected for sometime, many investors are concerned about the impact that a policy-rate hike cycle may have on economic outcomes and market paths."

"To be sure, the nature of the current cycle, current stance of monetary policy and the plethora of tools deployed are unlike past rate-hike cycles, so comparisons to past experiences come with these caveats."

"But our bottom line is that a shift to higher yields need not be a roadblock to ongoing economic and market progress."

"Ultimately, the ability of markets and economies to digest higher yields depends on the macroeconomic drivers of those higher yields."

"To the extent that tighter monetary policy reacts to better growth outcomes and is not the ‘shock’ on its own, we think any shift in policy can be well-digested."

"Moreover, the historical record is dominated by rate-hike cycles that, in hindsight, do not end in recession. Instead, economic growth is maintained– and perhaps even sustained – as constraints are eased."

"Hence, short of an anticipated growth contraction, markets may well be able to adjust to anew rate regime without much loss of momentum."

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