YEREVAN (CoinChapter.com) — Goldman Sachs has adjusted its projections for the Federal Reserve’s interest rate policy, and it is now expecting two rate cuts in 2024. According to Reuters, the Goldman Sachs experts have moved up their forecast, citing a cooling in inflation as the primary reason.
Fed Will Cut Interest Rates in 2024?
His marks a shift from their earlier prediction, which anticipated the Fed beginning to cut rates in December. Goldman Sachs now believes the Federal Funds Rate will be around 4.875% by the end of 2024, a decrease from their previous forecast of 5.13%.
In detail, the government might implement interest rate cuts after a series of quantitative tightening policies (eleven revisions) designed to battle runaway inflation. Once inflation is under control, the Fed may cut interest rates, re-expanding the economy and lowering the cost of borrowing.
Meanwhile, the Goldman Sachs revision came amidst indications of a stronger-than-expected US labor market and declining prices. Jan Hatzius, a Goldman Sachs analyst, noted that while healthy growth and labor market data suggest that “insurance cuts” are not imminent, the improved inflation news could mean that “normalization cuts” might occur a bit earlier.
He also mentioned that Federal Open Market Committee (FOMC) participants will likely remain cautious, preferring to be less optimistic in their inflation forecasts.
Inflation Is Still Above the Target
As mentioned, the Fed has raised its policy rate by 5.25 percentage points over the last 20 months. However, according to John Williams, the New York Fed Bank President, the Federal Reserve is at or near the peak level of the target range for the federal funds rate.
The personal consumption expenditures (PCE) price index showed a rise of 3% in October from a year ago, indicating a moderation but still above the Fed’s 2% target. The unemployment rate remains low at 3.9%, only slightly above the level when the Fed first began raising rates in March 2022.
There is a general expectation that the Fed will keep its overnight benchmark interest rate steady in the 5.25-5.50% range for the next several months.
New York Fed Doesn’t Expect Cuts
However, there is speculation among traders about the possibility of rate cuts starting in May, with further reductions potentially bringing the policy rate into the 4.00%-4.25% range by the end of 2024. Despite this, Williams has expressed that he does not share this view, emphasizing the uncertainty about the future policy path. He expects inflation to end this year at 3% and ebb to 2.25% in 2024 as economic growth slows and the unemployment rate rises.
During the Fed’s final meeting of the year on Dec. 12-13, markets anticipate discussing the future direction of interest rates. The policymaker could hold rates steady for the third meeting in a row and take stock of data that largely aligns with a “soft landing” scenario.
However, they also had to reconcile this assessment with the desire to keep an open option for further rate increases if inflation does not decline as hoped.
The upcoming presidential election in November adds a political dimension to the decision-making process, potentially complicating the timing and communication of rate cuts. Potential rate cuts would aim to keep pace with falling inflation and stabilize the “real” cost of borrowing rather than act as an economic rescue.
