Goldman Sachs Expects Fed to Start Cutting Interest Rates in Q2 Next Year

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Goldman Sachs has predicted that the Federal Reserve will start cutting interest rates in the second quarter of next year. The global investment bank’s economists also expect the Fed officials to forego hiking rates at their upcoming meeting. “We are penciling in 25 basis points of cuts per quarter but are uncertain about the pace,” Goldman said.

Goldman Sachs’ Interest Rate Cut Prediction

Global investment bank Goldman Sachs has predicted that the Federal Reserve will start cutting interest rates in Q2 next year. Goldman economists, including Jan Hatzius and David Mericle, detailed in a note Sunday:

The cuts in our forecast are driven by this desire to normalize the funds rate from a restrictive level once inflation is closer to target, not by a recession.

“Normalization is not a particularly urgent motivation for cutting, and for that reason, we also see a significant risk that the FOMC will instead hold steady,” the economists described. They noted:

We are penciling in 25 basis points of cuts per quarter but are uncertain about the pace … We expect the funds rate to eventually stabilize at 3%-3.25%.

Goldman Sachs is not the only one forecasting a rate cut in the second quarter of 2024. Bank of America, for example, said in June that it expects the Fed to begin cutting interest rates in May next year.

Regarding further interest rate hikes, the Goldman economists anticipate that the Fed will not raise interest rates at its upcoming Federal Open Market Committee (FOMC) meeting next month. They expect Federal Reserve officials to come to the conclusion at their November meeting “that the core inflation trend has slowed enough to make a final hike unnecessary.” The Fed’s aggressive campaign to combat inflation has pushed the benchmark interest rate to 5.25% to 5.5%, the highest level since 2001.

Fed governors, including Michelle Bowman, believe that additional interest rate hikes may be needed to get inflation on a path down to the Fed’s 2% target. Federal Reserve Chairman Jerome Powell said after the Fed’s latest rate hike that prevailing economic conditions suggest that monetary policy will likely need to be restrictive for longer, emphasizing: “We’re prepared to further tighten if that’s appropriate.”

Do you agree with Goldman Sachs’ economists that the Federal Reserve will start cutting interest rates in the second quarter of next year? Let us know in the comments section below.