According to Goldman Sachs economists, the U.S. Federal Reserve is expected to hold off on cutting rates until the fourth quarter of next year. They attribute this to stronger-than-expected economic growth, which is helping stave off a potential recession.
In a note dated Sunday, Goldman’s David Mericle and the firm’s economics team noted that the U.S. economy has made significant progress towards a soft landing this year, defying recession fears.
The firm now predicts a 15% chance of recession over the next 12 months, compared to the consensus probability of 48%, with an expected gross domestic product growth of 2.1% in 2024.
Additionally, Goldman economists stated that the conditions for inflation to return to target are in place, and they believe that the toughest part of the inflation fight is over.
Goldman projects the Fed to implement its first rate cut in the fourth quarter of 2024, with subsequent 25 basis point cuts anticipated at every quarter until the second quarter of 2026, reaching a fed funds rate of 3.5-3.75%, a “higher equilibrium rate than last cycle.”
On the other hand, traders are anticipating rate cuts from the middle of 2024, with Morgan Stanley economists expecting the first 25 basis point cut in June 2024. They also foresee additional cuts at three more Fed meetings next year and at every meeting in 2025, according to their economics outlook report.
(Reporting by Lewis Krauskopf; Editing by David Gregorio)
