Goldman Sachs Now Sees Fed Cutting Rates As Soon As July ’24 As Inflation Cools
Goldman Sachs has also taken part in the list of all the market participants who believe that the Federal Reserve is to cut interest rates sooner than the initial forecast.
The economic team of the organization, which is led by Jan Hatzius, mentioned in a note on Sunday that they are expecting the Fed to start cutting the rate of interest within the third quarter of 2024. The organization previously had expected the cuts to start in the fourth quarter.
“The change does not reflect any major shift in our thinking but rather that the rough thresholds for cutting that we have given previously are now reached earlier,”
the economic team at Goldman Sachs wrote in their note on Sunday.
The economists at the firm are now seeing inflation to drop faster in the upcoming year than what was actually projected.
Inflation, as is measured by the core Personal Consumption Expenditures index, which is the preferred measure of the Federal Reserve, is now anticipated to reach 2.5% by next month’s second quarter. As per September, Goldman expected this benchmark might be crossed for the very first time within the fourth quarter of 2024.
In October, the very last week for which there is data available, core PCE increased by 3.5% from the previous year. The Fed is targeting 2% inflation.
“Most Fed officials think that 5.25%-5.50% is clearly well above the neutral rate, and that it is not necessary or appropriate to keep the funds rate that high once the inflation problem has passed,”
the Goldman Sachs team wrote.
It is expected that the Federal Reserve will hold the interest rates within this range when it finally announces the final fiscal policy decision of the year in the afternoon on Wednesday.
The organization’s call comes only a day after the November Consumer Price Index report and only two days ahead of the final monetary policy announcement for the year of the Fed.
The “dot plot” of the Fed is also ready to outline all the new rate of interest forecasts for the upcoming years on Wednesday.
“Most FOMC participants will likely see the latest inflation numbers as a genuinely encouraging surprise, and some might pencil in more cuts than before,”
the Goldman Sachs team wrote.
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