While we suggested that the lack of a solid rebound in average hourly wages clouded the Fed's intentions on future rate hikes after March, Goldman had no such doubts and in a report issued moments after the "solid jobs report", Goldman's chief economist Jan Hatzius revised his forecast for upcoming FOMC moves, pulling forward the next two rate hikes, expecting interest rate increases in March, June and September, up from the previous March, September and December. More importantly, Goldman now also expects the Fed to start its "balance sheet normalization to Q4 2017 from mid-2018 previously."

The full note:

Fed Call Change on Solid Jobs Report

BOTTOM LINE: Following the better-than-expected February employment report we have made a few modest changes to our Fed call for 2017. We now look for funds rate increases in March, June, and September (compared to March, September, and December previously), and have pulled forward our forecast for the start of balance sheet normalization to Q4 2017 from mid-2018 previously.

MAIN POINTS: 

Nonfarm payroll employment increased by 235k in February, more than expected by consensus forecasts, and the underlying details of the report generally looked solid. As a result of the strong jobs numbers, benign financial conditions, and recent communication from FOMC participants, we are making a few modest changes to our Fed call for this year. Specifically, while we continue to expect three rate increases in 2017, we now look for a March hike to be followed by rate increases in June and September (versus September and December previously). In addition, we have changed our forecast for the start of balance sheet normalization: we now expect the committee to end full portfolio reinvestment in Q4 2017, instead of mid-2018. Under our forecasts for the US economy, we see it as a close call as to whether the FOMC would raise the funds rate four times this year or hike three times and begin balance sheet normalization. But for a variety of reasons—including considerations around the transition to a new Fed Chair in 2018—we see earlier balance sheet normalization as slightly more likely than a fourth funds rate increase.