Daily Management Review

Goldman Sachs Predicts The First Of Two Fed Rate Cuts For 2024 In Q3


Goldman Sachs Predicts The First Of Two Fed Rate Cuts For 2024 In Q3
The U.S. Federal Reserve is now expected to drop interest rates twice in 2019, with Goldman Sachs pushing back its prediction for the first reduction to the third quarter due to declining inflation.
As previously forecasted by the brokerage, the Fed will start lowering rates in December of next year.
By the end of 2024, two cuts would suggest a Federal Funds Rate of 4.875%, as opposed to the prior estimate of 5.13%.
Despite data on Friday indicating a better-than-expected state of the U.S. labour market, traders are betting that the Fed will continue cutting interest rates in spite of falling asset values in 2019. March is when they anticipate making the first cut.
"Healthy growth and labor market data suggest that insurance cuts are not imminent... But the better inflation news does suggest that normalization cuts could come a bit earlier," Goldman Sachs economist Jan Hatzius said in a note dated Dec. 10.
According to inflation figures released last month, October's U.S. consumer prices remained constant due to lower petrol prices, and the underlying inflation annual rise was the lowest in two years.
In reaction to the inflation data, some participants would "pencil in more cuts than before, but others might hold back to avoid encouraging the market to price too many cuts too soon," according to Goldman Sachs.
"Our own inflation forecast is a touch lower, but FOMC (Federal Open Market Committee) participants will likely still prefer to err on the side of being less optimistic," adds Hatzius.