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Goldman's Cohen: Rate hike before QE ends

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This is what you call an outlier. Some might even call it a Black Swan.

In any event, Abby Joseph Cohen, senior strategist at Goldman Sachs, put forth quite a market call that, if correct, would diametrically oppose Wall Street's view on the near-term direction of Federal Reserve policy.

Speaking in the "Midyear Roundtable" in this week's Barron's, Cohen said the Fed likely will begin increasing interest rates even before it exits its monthly bond buying program known as quantitative easing:

Recent public commentary by members of the Fed's policy-making committee suggest the Fed could start raising rates even before it has finished tapering, or winding down, the latest round of quantitative easing. There is enormous pressure on any central bank when real interest rates are zero. It is nearly out of monetary tools. Market rates likely will move higher. We expect the 10-year Treasury yield to rise to 3.25 percent by year end.

It's not entirely clear which Fed commentary she was referencing as market expectation, based on most Fed officials' statements, is that the first rate increases won't come until mid-2015 or later. Only the hawkish Esther George, who leads the central bank's Kansas City branch, has been an advocate for hiking rates sooner than expected, and even she has said that shouldn't happen until after QE is finished.

In 2008, in the midst of the financial crisis, Cohen projected the to finish the year at 1,675. Instead, the stock market index ended at 903, more than 40 percent below her estimate. That year, Goldman moved her from chief investment strategist to senior investment strategist.

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Goldman officials did not immediately respond to a quest for comment.

To read the full Barron's post, go here.