Noting the absence of a clear indication that the central bank’s rate-setting group was set to tighten policy, Goldman Sachs has trimmed the odds of the U.S. Federal Reserve raising interest rates next week.

While raising the odds that the next increase will come at the December meeting to 40 percent from 30 percent previously, the bank’s economists led by Jan Hatzius said in a note, Goldman cut the subjective odds of an interest rate hike to 25 percent from 40 percent previously.

Fed Governor Lael Brainard warned on Monday against moving too quickly on rate hikes and the new assessment from Goldman came after Brainard warning. In recent days, a flurry of Fed speakers had offered divergent views on the outlook for monetary policy and her comments followed such comments.

Some market participants had speculated that her speech could be used as an opportunity to prepare markets for an interest rate increase as Brainard, a voting member of the Federal Open Market Committee (FOMC), was the last scheduled Fed speaker before next week’s meeting.

“The lack of a signal is meaningful because if action were likely, the committee would normally make an effort to nudge the market toward anticipating a hike,” the Goldman Sachs economists said in the note.

They were still reluctant to cut their subjective probabilities further given uncertainty over the FOMC’s intentions, the economists noted.

Earlier on Monday, Fed Governor Lael Brainard said in a closely watched speech that economic progress continues in the U.S., but its central bank would be wise to continue keeping policy loose.

Brainard offered cautionary tones against moving too fast amid market concerns that the Fed was about to resume its rate-hiking cycle. The impact that global difficulties will have on the U.S. economy was of particular concern for her.

According to prepared remarks she was to deliver to The Chicago Council on Global Affairs, Brainard said that still-muted inflation and uncertain developments ahead “counsels prudence in the removal of policy accommodation.”

“I believe this approach has served us well in recent months, helping to support continued gains in employment and progress on inflation,” she said.

Immediately after news of Brainard’s speech broke, chances of a rate hike at the Fed’s next meeting slumped. Down from 21 percent before the speech and as high as 30 percent Friday , traders now anticipate just a 15 percent probability. However, now standing at 59.2 percent, up from 57.7 percent, the likelihood of a move before the end of the year edged up slightly.

Her areas of worry were China and emerging markets in particular.

“Foreign consumption and investment are weak, while foreign demand for savings is high, along with an elevated demand for safe assets,” Brainard said.

“Downside risks are also present in emerging market economies, where growth has slowed rapidly in recent years. Most importantly, China is undergoing a challenging transition from a growth model based on investment, exports, and debt-fueled state-owned enterprises to one driven by consumption, services, and dynamic private businesses. Because of the adjustment costs along this transition path and demographic trends, Chinese growth will likely continue to slow,” she added.

(Adapted from CNBC)

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