6yo Boy Kidnapped from School By Police, Locked in Psych Ward for 3 Days — for Temper Tantrum

Jacksonville, FL — For throwing a temper tantrum, 6-year-old Nicholas, who has been diagnosed with attention deficit hyperactivity disorder and disruptive mood dysregulation disorder, was kidnapped from his elementary school by police and imprisoned in a psychiatric hospital.

Nicholas was held, including multiple stints in a ‘seclusion room,’ for three days at River Point Behavioral Health.

According to Buzzfeed, “River Point Behavioral Health is a troubled unit of the nation’s largest psychiatric hospital chain, Universal Health Services. UHS was the subject of a recent BuzzFeed News investigation, which found that current and former employees from at least 10 of the company’s hospitals in nine states said they were under pressure to fill beds by almost any method and to hold patients until their insurance payments ran out. Nicholas was covered by Medicaid, the government insurance program.”

Once admitted to the hospital, the staff stayed true to their tendency of holding patients and did everything they could to use the state to force Nicholas to stay. This was in spite of his parents’ demands to let him out.

“I didn’t want him to be there at all,” Nicholas’ mom told BuzzFeed News, adding that she immediately asked the facility to release her son because he was so young and didn’t need to be there.

“It felt like my child had been kidnapped,” she said. “I can’t even hug my kid and tell him it’s going to be okay.”

At River Point, as reported by Buzzfeed, Nicholas would be given a bloody nose by another child, get locked in a “seclusion” room at 3 in the morning, and wait more than 24 hours to see a psychiatrist, according to medical records provided by his parents.

His parents asked at least three times to take their son home — every time, they were denied.

“The Baker Act is supposed to confine really mentally ill people who are dangerous — and a kid who has a temper tantrum is not a danger to the public,” said Stephen Talmadge, a lawyer and psychologist who specializes in that law and who reviewed documents from Nicholas’s case, according to Buzzfeed. ”What is the kid going to do, bite a stranger?”

When Nicholas’ parents finally got to see their son, he’d been put through so much torment and stress that he couldn’t make eye contact or even talk.

“He was out of his mind, we didn’t recognize him,” said his father. “It was hard to leave him there — you wanted to just grab him and run out of the facility with him.”

As Buzzfeed reports, this little boy, who the state deemed a threat to society was nothing of the sort. After he was finally released from the hospital, he went back to his kind and loving self.

On a recent warm December day at a playground in Jacksonville, Nicholas was dressed in a Teenage Mutant Ninja Turtles T-shirt and blue jeans, his skin bronzed from the Florida sun. He kissed his mother and ran off to play.

At one point, Nicholas bumped into a smaller boy on the swing set and looked startled when the boy fell down and began to cry. Nicholas ran and hid under the slide.

But then he emerged and approached the boy. They began taking turns tossing a ball at a hoop in the corner of the playground. Soon, they were laughing.

The 55lb, 4′ tall 6-year-old, as described above, is the same person police, school officials, state officials, and state-funded psychiatrists all felt was a threat to society.

What this case illustrates is the dependency upon the state to resort to the use of police and force to solve problems previously solved by councilors and parents.

As the Free Thought Project previously reported, according to statistics released by the U.S. Department of Education and published by NBC News, in the 2011-2012 school year, teachers called the cops on students a total of 31,961 times in the state of California alone, leading to 6,341 arrests.

If a 6-year-old boy was taken by police from a school and locked in an isolation room in the 90’s, you can rest assured that this would not fly. Instead, it has become the go-to approach in the land of the free.

In May, we reported on the video showing a San Antonio Independent School District police officer body slam a 12-year-old girl. In February, the Free Thought Project brought you the story of the Baltimore School cop who was seen beating a student who had done nothing wrong.

In fact, recent videos have revealed a myriad of school cops attacking unarmed students. In December, Officer Rigo Valles was cleared of any wrongdoing after grabbing a student by the neck and slamming him to the floor. In October, Richland County Deputy Ben Fields was fired after students recorded him flipping over a girl’s desk and dragging her across the floor. Oklahoma City Master Sgt. Thomas Jaha was charged with assault and battery in October as well, after repeatedly punching a student in the face for not having a hall pass.

In November 2015, prosecutors agreed to dismiss assault charges against Louisville Metro Police Officer Jonathan Hardin for punching a student in the face if the former officer completes anger management classes. Hardin still faces wanton endangerment, official misconduct, and assault charges for choking another student unconscious in a separate incident five days later. In separate incidents earlier this year, school cops have also been caught attacking an autistic boy, body-slamming a child, and raping nearly two dozen students.

And these are the ones the public knows about. How many more incidents, just like this one, go unreported and unpunished?

What this data illustrates is the societal dependence on the state to solve matters that should be handled without government. Being dependent upon the state to solve one’s problems is a de facto dependency upon violence.

“The State represents violence in a concentrated and organized form. The individual has a soul, but as the State is a soulless machine, it can never be weaned from violence to which it owes its very existence.” -Mohandas Karamchand Gandhi

If you truly want a glimpse into the horrid effects of the police state on all school children, take a scroll through our archives, at this link.

Until people wake up to the reality of relying on a system of violence to maintain “order” and behavior compliance, we can expect this problem to get worse.

Saudi Executes 153 in 2016

Saudi Arabia carried out 153 executions in 2016, according to an AFP tally based on official announcements, slightly down from the year before.

The ultra-conservative kingdom is one of the world’s most prolific executioners and has a strict Islamic legal code under which murder, drug trafficking, armed robbery, rape and apostasy are all punishable by death.

Rights group Amnesty International said Saudi Arabia carried out at least 158 death sentences in 2015, coming third after Iran and Pakistan.

Amnesty’s figures do not include secretive China.

Read more

U.S. Special Operations Numbers Surge in Africa’s Shadow Wars

Africa has seen the most dramatic growth in the deployment of America’s elite troops of any region of the globe over the past decade, according to newly released numbers.

In 2006, just 1% of commandos sent overseas were deployed in the U.S. Africa Command area of operations. In 2016, 17.26% of all U.S. Special Operations forces — Navy SEALs and Green Berets among them — deployed abroad were sent to Africa, according to data supplied to The Intercept by U.S. Special Operations Command. That total ranks second only to the Greater Middle East where the U.S. is waging war against enemies in Afghanistan, Iraq, Syria, and Yemen.

“In Africa, we are not the kinetic solution,” Brigadier General Donald Bolduc, the chief of U.S. Special Operations Command Africa, told African Defense, a U.S. trade publication, early this fall. “We are not at war in Africa — but our African partners certainly are.”

That statement stands in stark contrast to this year’s missions in Somalia where, for example, U.S. Special Operations forces assisted local commandos in killing several members of the militant group, al-Shabab and Libya, where they supported local fighters battling members of the Islamic State. These missions also speak to the exponential growth of special operations on the continent.

As recently as 2014, there were reportedly only about 700 U.S. commandos deployed in Africa on any given day. Today, according to Bolduc, “there are approximately 1,700 [Special Operations forces] and enablers deployed… at any given time. This team is active in 20 nations in support of seven major named operations.”

Using data provided by Special Operations Command and open source information, The Intercept found that U.S. special operators were actually deployed in at least 33 African nations, more than 60% of the 54 countries on the continent, in 2016.

Special Operations Forces deployments in 33 African countries in 2016.

Map: The Intercept

“We’re supporting African military professionalization and capability-building efforts,” said Bolduc. “The [Special Operations forces] network helps create specific tailored training for partner nations to empower military and law enforcement to conduct operations against our mutual threats.

The majority of African governments that hosted deployments of U.S. commandos in 2016 have seen their own security forces cited for human rights abuses by the U.S. State Department, including Algeria, Botswana, Burkina Faso, Burundi, Cameroon, Democratic Republic of Congo, Djibouti, Kenya, Mali, Mauritania, Niger, Nigeria, and Tanzania, among others.

According to data provided to The Intercept by Special Operations Command, elite U.S. troops are also deployed to Sudan, one of three nations, along with Iran and Syria, cited by the U.S. as “state sponsors of terrorism.”

“U.S. [Special Operations forces] have occasionally met with U.S. State Dept. and interagency partners in Sudan to discuss the overall security situation in the region,” Africa Command spokesperson Chuck Prichard wrote in an email.

Special Operations Command spokesman Ken McGraw added, “Their visit had nothing to do with Sudan’s government or military.”

Miami Cops Fired after ‘joking’ about Using Black Neighborhood as Target Practice

Three rookie police officers were fired just before days Christmas after joking in chat logs about using Miami’s black neighborhoods as a shooting range, according to an internal investigation.

“Anyone know of an indoor shooting range in Miami?” one officer asked in a WhatsApp group chat, according to a story first reported by the Miami Herald.

“Go to model city they have moving targets,” replied Kevin Bergnes.

“There’s a range in overtown on 1 and 11. Moving targets and they don’t charge,” added Miguel Valdes.

Overtown is the name of a predominant black neighborhood, just northwest of downtown Miami. It was originally called Colored Town during the Jim Crow era of the late 19th through the mid-20th century.

Officers Bergnes, Valdes and Bruce Alcin told an investigator they were “joking,” according to investigation documents, obtained by the Miami Herald.

But the social media chat upset a colleague and the three officers were fired two days before Christmas.

Stephen Lopez, an attorney for the officers, said the remarks were taken out of context and that there was no misconduct.

Lopez told the Miami Herald his clients were not racist as Alcin is African American, and Valdes has a black grandfather.

He said that the officers plan to sue the city because it discriminated against them.
It is not the first time that Miami police officers have been embroiled in a racial profiling scandal.

In January 2015, a National Guard Sergeant paid a visit to a shooting range in Medley, Florida and found North Miami Beach Police had been doing shooting drills using mug shots of six black males as targets.

To make matters worse, Valerie Deant recognized one of the images as her brother, Woody.

About 15 years earlier, Woody Deant had been arrested over his involvement in a drag racing incident that left two people dead. Deant, whose image at the firing range had been sprayed by bullets, had spent four years behind bars.

North Miami Beach Police Chief J. Scott Dennis defended the actions of his officers, some of whom he said are minorities themselves. Dennis said his department also uses images of whites and Latinos for target practice.

“Our policies were not violated,” the police chief was quoted by NPR as saying. “There is no discipline forthcoming for the individuals who were involved with this.”

He admitted, however, that the officers could have exercised better judgment, because one of the men, Woody Deant, “would be someone that was on the streets of North Miami Beach.”

Two years prior in April 2013, a Florida policeman lost his job for using photos of Trayvon Martin, the young black man who was shot and killed last year by a neighborhood watchman, for target practice.

'Policing For Profit' Goes To The Next Level

It’s bad enough getting arrested – especially when you didn’t do anything to warrant it. This happens all the time, because the the threshold for arresting someone is very low. It can be done by any cop, pretty much anytime – without much in the way of legal justification. He has the gun – and the handcuffs, after all. If he wants to arrest you, he will arrest you. Maybe the courts will sort it out later; eventually you are released, your record “cleared.”

This isn’t new – or news.

What is new – and ought to be news – is that several states have begun charging people “processing” and “incarceration” fees for their bogus arrest and subsequent just-as-bogus caging.

Minnesota and Kentucky are among the states that levy fees on people who are merely arrested and taken to the clink… even if they are never convicted of anything. In some cases, the people being charged for “services” rendered are never formally charged with any crime (which is something a prosecutor must do; a cop hasn’t got the power to do more than arrest you on suspicion of violating a statute).

It’s policing for profit taken to the next (entirely predictable) level.

Why not, after all?

Most states already have “just take it” laws on the books that empower cops to simply seize cash and other property prior to any judicial proceeding  – and to keep it, even if there never is a judicial proceeding.

The mere fact that you have “excessive” cash on your person is sufficient legal justification in many states to result in its forfeiture – until you prove to their satisfaction it wasn’t “drug” money.

It is not their burden to establish… anything.

Franz Kafka, phone home.

We also have the equally egregious precedent of for-profit enforcement of traffic laws – coincident with the suspension (or at least, the watering down) of any semblance of procedural innocent-until-proved guilty. Cities and counties contract with a private company (the notorious Redflex being the chief profiteer) to install automated red light and speed cameras that chuck tickets to offenders automatically, via the mail – with the offender presumed guilty until he proves himself innocent.

The ticket is sent to the registered owner of the vehicle – who is not necessarily the person who was driving when the camera snapped the photo of the car’s plates and chucked a ticket to the owner. But the owner must prove it wasn’t him – as opposed to the former necessity of the state/county having to prove it was.

Meanwhile, pay up.

So it’s not surprising that states have decided to begin charging people for charging them – that is, accusing them of something. There’s even more potential profit in this since a cop can arrest anyone at any time – just about.

The evidentiary bar has been set extremely low – and whole categories of “crime” have been confected or defined so loosely (e.g., “disorderly conduct,” “interfering” with a law enforcer) as to make an arrest almost a matter of whim.

Now add a profit motive to the mix.

In economic terms, hanging a dollar sign on every citizen within handcuffing range of a cop is an incentive to handcuff as many citizens as possible. They are, after all, paying customers.

Can arrest quotas be far behind? Remember, many state/county cops already have ticket quotas, precisely because of the profit motive. And note that, in some states, even if you successfully fight a traffic ticket, you are still hit with a “processing” fee which you must pay – or else.

So it’s no surprise that Colorado doesn’t give money (fines and restitution levied) back to people whose convictions have been overturned.

Soon, the Unelected Nine (the Supreme Court) will weigh in on the “constitutionality” of this business.  A case headed their way involves a man named Corey Statham, who was arrested in Ramsey County, MN and charged with “disorderly conduct.” He was taken to the clink but released after the charges against him were dropped.

His money, however, was not released.

He was charged a $25 “booking fee” and other assorted “processing” fees by his gaolers. He is contesting this theft under color of law on the basis that he wasn’t convicted of any crime, hence why should he be punished?

The Unelected Nine are not likely to be sympathetic, having previously legitimated assault and battery upon the Fourth and Fifth as well as other amendments. For example, the ex-constitutional requirement that the accused be presumed innocent until proved guilty (in a court of law) has been gotten rid of by declaring things like automated red light/speeding tickets to be mere administrative affairs. Since there’s no prospect of jail time, you (the accused) lose the right to your day in court, including your ex-right to confront your accuser. Instead, you may be allowed to file some kind of written appeal, which may or may not be read by anyone – who may or may not be interested in anything you have to say.

And – naturlich – you must pay first and regardless. Red Queen style. Maybe they’ll give you your money back. Probably not.

It’s dirty pool, old man.

And the game is getting more serious.

But there is an upside. The fools have showed us their hand. It is clear now to all but the terminally stupid what’s up – and why. We see behind the curtain and know what the man is up to.

It isn’t coincidental that contempt for law enforcement is no longer a feeling felt only by the criminal class. The working and middle classes understand that it’s not about their “safety.”

Or the “safety” of the cops, either.

It’s about separating them from their money using any means necessary. About abusing them as badly as any Redcoat, those many years ago. Which brings up the line in the Declaration about sending hither “swarms of officers” to “eat out their substance.”

Rings a bell, doesn’t it?

Goldman's 10 Most Important Questions For 2017

Goldman Sachs is relatively optimistic about growth in 2017, for three reasons: first, despite the lack of spare capacity, US recession risk remains below the historical average; second, financial conditions should remain a growth tailwind - at least in the first half of 2017; and third, we expect a fiscal easing accumulating to 1% of GDP by 2018. However, uncertainty remains and here is what Jan Hatzius and his team believe are the ten most important questions for 2017.

1. Will growth remain above trend?

Yes. Admittedly, the expansion is quite advanced. It has already lasted about 18 months longer than the median completed expansion since the mid-1800s. And while expansions do not die of old age, history shows that they are at greater risk when spare capacity is exhausted, as it probably is now. So it is especially important to monitor whether growth may be running out of steam.

Nevertheless, we are relatively optimistic about growth in 2017 and expect real GDP to climb at a 2.2% rate. First, despite the lack of spare capacity, US recession risk remains below the historical average, as shown in Exhibit 1. The most important recession predictors, at horizons longer than the next few quarters, are spare capacity and past credit growth. Spare capacity has dwindled, which has boosted the recession probability somewhat, but output is not yet meaningfully above potential. Moreover, debt growth has been very moderate in the economy as a whole, despite pockets in the corporate sector where the credit cycle is more advanced. This is also consistent with alternative measures of financial imbalances such as the private sector financial balance, which remains comfortably in surplus to the tune of 2½% of GDP.

Exhibit 1: US Recession Risk Below Historical Average

Source: Goldman Sachs Global Investment Research

Second, financial conditions have turned from a growth headwind into a growth tailwind over the past year, as shown in Exhibit 2. Admittedly, financial conditions have tightened modestly in recent months as the increase in bond yields and the appreciation of the US dollar have outweighed the rally in the equity market. But our analysis shows that, in practice, the growth impulse depends on the year-to-year change in our financial conditions index, at least to a first approximation. Barring a big tightening in coming months, the impulse should therefore remain quite supportive, at least in the first half of 2017.

Exhibit 2: FCI Impulse Likely to Remain Positive for Much of 2017

Source: Goldman Sachs Global Investment Research

Third, by the time the financial conditions impulse diminishes in the second half of 2017, fiscal policy should begin to turn more supportive. We expect a fiscal easing of about 1% of GDP once it is fully phased in, consisting mostly of personal and corporate tax cuts. Although the multiplier associated with these cuts is probably relatively small—we estimate an average of 0.6 across the entire assumed fiscal package—they should nevertheless make a respectable contribution to growth in the second half of 2017 and first half of 2018, as shown in Exhibit 3.

Exhibit 3: A Fiscal Boost to Growth

Source: Department of Commerce. Congressional Budget Office. Goldman Sachs Global Investment Research.

2. Will the incoming administration enact major tax-related legislation?

Yes. Some type of tax legislation seems very likely to pass in 2017, for three reasons. First, Republicans have it in their ability to pass tax legislation without Democratic votes, by using the reconciliation process. Second, tax reform—or at least a tax cut—was an important aspect of the presidential campaign. Third, it has been a top priority for congressional Republicans, and particularly House Speaker Paul Ryan, for several years.

Congressional Republicans appear to be primarily focused on corporate tax reform, with a particular focus on lowering the statutory rate and reforming the treatment of cross-border income (see here for more detail). We believe the principal goals among many lawmakers are to lower the effective tax rate on business investment and to reduce the incentive for US companies to locate production overseas and/or to redomicile via “inversion” transactions. The most controversial item in the House Republican tax reform plan appears to be the destination-based border-adjusted corporate tax. If enacted, this would have important implications for importers and exporters, domestic price inflation, and the value of the dollar. We see a 30% probability that this proposal is included in whatever tax reform legislation Congress ultimately enacts next year.

Reductions in individual income tax rates also appear likely. The existing plan from House Republicans cuts the top marginal tax rate to 33% from 39.6%, and reduces the number of tax brackets from seven to three. The proposal also calls for repealing the Affordable Care Act (ACA, or “Obamacare”), including its taxes on investment income and higher-income earners, and would make a number of other reforms to the individual income tax code. Analysis by the Tax Policy Center suggests the plan would reduce federal government revenue by about $2 trillion over ten years.

Exhibit 4: Comparing Tax Plans

Source: Office of Management and Budget. House Ways and Means Committee. Trump Campaign. Goldman Sachs Global Investment Research.

3. Will the housing recovery continue?

Yes, at a moderate pace. Admittedly, the 80bp increase in 30-year fixed mortgage rates since September has complicated the housing outlook somewhat. Our analysis shows that this could take as much as 5% off the level of housing starts in the next few quarters, relative to a baseline without mortgage rate shocks (Exhibit 5).

Exhibit 5: Higher Mortgage Rates Likely to Weigh on Residential Investment

Source: Goldman Sachs Global Investment Research

But the positive forces underpinning the housing recovery remain substantial. From a short-term perspective, it is noteworthy how strong the demand indicators have looked recently—new single-family home sales are up about 20% year-on-year and the homebuilders’ index hit an 11-year high in December. And more fundamentally, the still-low level of housing starts relative to the underlying demographics should continue to provide support in coming years. Exhibit 6 shows that the sum of the demographic trend in household formation and demolitions is currently about 1.4 million per year—above the current level of housing starts of around 1.2 million.

Exhibit 6: Housing Starts Remain Below Demographic Trend

Source: Department of Commerce. Goldman Sachs Global Investment Research.

4. Will consumption continue to outperform capital spending?

No. Growth has been quite unbalanced over the last two years. Since the third quarter of 2014, real personal consumption has grown 3% (annualized), more than 1pp above the economy’s estimated long-term trend of 1¾%. In contrast, real business investment has stagnated. Outside early recovery episodes, when consumption often leads capital spending, such a gap is quite unusual. We expect it to close because much of it is a one-off effect of the 2014-2016 decline in energy prices.

The energy price decline sharply boosted real household income, and thereby consumption. As shown in the left panel of Exhibit 7, lower energy prices added about 0.6pp to the annualized growth rate of real disposable income over the past two years. The marginal propensity to consume out of energy-related changes in real income is usually thought to be relatively high because lower- and middle-income households typically spend a larger share of their income on energy than higher-income households. This suggests that most of this 0.6pp boost probably translated into stronger consumption growth. But most of it is now likely behind us.

Conversely, the energy price decline sharply hit corporate profits, and thereby capital spending. The right panel of Exhibit 7 shows that losses in the oil & gas industry subtracted about 15pp from corporate profit growth over the course of 2015. Now the weakness is behind us, and corporate profits are once again growing at a reasonable pace.

Exhibit 7: Energy Price Declines Lifted Household Income but Weighed on Profits

Source: Department of Commerce. Department of Labor. Standard and Poors. Goldman Sachs Global Investment Research.

5. Will the labor market overheat?

Yes, slightly. The starting point at the end of 2016 is approximately full employment. Some indicators such as the broad underemployment rate U6 and summary measures of nominal wage growth still show a small amount of labor market slack. Others such as the job openings rate and the level of skill shortages are already consistent with a modest amount of labor market overheating.

Our growth forecast for 2017 implies that the economy will grow about ½pp above its longer-term trend rate and as much as 1pp above the pace that has been consistent with stable labor market slack in recent years. If so, we would expect the unemployment rate to fall ¼-½ pp over the next year, with other labor market indicators following suit. This would imply a small amount of labor market overheating.

Labor market overheating must eventually be reversed to keep inflation from rising too far above the target. But reversing an overheating means that the unemployment rate would need to rise, and it has historically been very difficult to do this without pushing the economy into recession. In fact, as shown in Exhibit 8, there has never been a rise in the US unemployment rate of more than ?pp that was not associated with a recession. Outside the US, there are precedents for such "soft landings from below" (see here), but the point that these are difficult to achieve holds more broadly.

Exhibit 8: A Soft Landing from Below Is Difficult

Source: Department of Labor. NBER.

6. Will wage growth hit our 3.0%-3.5% estimate of its full employment level?

Yes. Wage growth has accelerated meaningfully in recent years as the labor market has tightened (Exhibit 9). The firming has been most pronounced at the bottom end of the wage distribution, aided by minimum wage hikes at the state and city level that are likely to continue in coming years—even if an increase at the federal level now appears very unlikely. While aggregate wage growth remains somewhat below both the pre-recession rate and the equilibrium rate that we would expect in a full employment economy, we do not see this as a sign that hidden slack remains. Rather, a combination of the impact of past slack earlier in the year, negative composition effects on aggregate wage growth, and an environment of weak productivity growth and soft inflation appear to account for most of that gap (see here for more detail). As the labor market tightens further wage growth should continue to firm.

Exhibit 9: Wage Growth Continues to Accelerate

Source: Goldman Sachs Global Investment Research

7. Will inflation reach the Fed’s 2% target?

Yes. Headline PCE inflation has picked up from a low of 0.2% year-over-year in September 2015 to 1.4% as of last month. If energy prices hold around the current level, PCE inflation should reach the Fed’s 2% target by February or March. Core PCE inflation has also firmed over the last year, rising from a low of 1.3% to 1.6% as of November. We expect core inflation to continue accelerating—reaching 2% by Q4—as the labor market tightens further and the lagged effects of past dollar appreciation fade.

We will be keeping a particularly close eye on medical care inflation next year, which has been the main factor behind the divergence between core CPI and core PCE inflation recently. As we have discussed in detail elsewhere, only about half of the gap between the two measures can be explained by differences in scope. The remaining difference between the two series largely reflects measurement error, in our view, with the CPI overstating reimbursement rate inflation and the PCE index understating it. We therefore expect the two series to converge over time, giving a lift to core PCE inflation while holding core CPI inflation roughly steady in 2017.

8. Will the Fed hike faster than implied by market pricing?

Yes. At present markets are discounting an end-2017 federal funds rate of about 1.2%—54 basis points (bp) above the current effective funds rate, and implying just over two 25bp rate hikes for the year. We continue to expect the FOMC to raise rates three times, with the first hike coming in June. At the end of October markets were pricing in about 30bp of rate increases for 2017—slightly more than one 25bp rate hike—so the gap between market pricing and our forecast has already narrowed quite a bit, but we still think market pricing looks too low. Much will depend on the incoming data early in the year and the evolving prospects for fiscal stimulus. If growth momentum continues to look solid and fiscal stimulus appears likely, we would expect most FOMC members to support picking up the pace of hiking.

9. Will the market’s terminal funds rate estimate continue to rise?

Yes. In our annual questions for 2016 we said the same, but decided the verdict was inconclusive (see here for our review). Forward OIS rates declined for much of 2016, but increased sharply after September (Exhibit 10). Markets are now pricing a terminal funds rate of 2.5%—virtually identical to the level at the end of 2015, but up more than 100bp from the 2016 lows.

Even after the latest increase these estimates still strike us as quite low. The US economy is close to full employment, growing above trend, and generating inflation around 2%. Plus, markets already see the funds rate reaching 1.2% by the end of next year. Given this economic backdrop and with the prospect of more rate increases over the near-term, market pricing for the terminal funds rate seems unsustainable. Moreover, our research shows that one key tenet of the depressed r* narrative rests on relatively shaky empirical ground: historical evidence suggests market participants and Fed officials may be assuming too tight a link between potential growth and equilibrium policy rates (see here for details).

Exhibit 10: Only a Partial Recovery in the Market’s Terminal Funds Rate Estimate So Far

Source: Goldman Sachs Global Investment Research

10. Will the Fed start to shrink its balance sheet?

No. Fed officials have said that the size of the central bank’s balance sheet will likely remain unchanged until funds rate increases are “well under way”. We have interpreted this guidance to mean that full reinvestments in the Fed’s securities portfolio would continue until mid-2018, when we expect the funds rate to be around 2% (Exhibit 11). After that we forecast that policymakers would begin a slow, tapered runoff of the balance sheet that would last for several years.

Exhibit 11: We Expect the Fed’s Balance Sheet to Remain at Current Size in 2017

Source: Federal Reserve. Goldman Sachs Global Investment Research.

Some of the economic advisers to President-elect Trump appear to favor a smaller Fed balance sheet with a shorter duration, and this issue could come up in any nomination hearings for the two open Board positions. However, we do not think the election result meaningfully affects the outlook for the balance sheet for 2017. First, Chair Yellen will remain at the helm until early 2018, and will likely continue to execute the committee’s current plans—even with the addition of a few President-elect Trump appointees to the Board. Second, in our view, the ideal size of the central bank’s balance sheet is not really a macroeconomic issue—rather, most of the key determinants are institutional and regulatory matters (see here). As a result, the views of the new administration may evolve as it begins to tackle regulatory reform and debt management concerns.