Goldman forecasts US Fed will start rate cuts in second quarter of 2024

NEW YORK – Goldman Sachs Group economists anticipate the United States Federal Reserve will start lowering interest rates by the end of June next year, with a gradual, quarterly pace of reductions from that point.

“The cuts in our forecast are driven by this desire to normalise the funds rate from a restrictive level once inflation is closer to target,” Goldman economists, including Mr Jan Hatzius and Mr David Mericle, wrote in a note dated Sunday. 

For now, the Goldman team is pencilling in rate cuts to begin in the second quarter of 2024. The rate-setting Federal Open Market Committee (FOMC) is expected to skip an increase in September and conclude at the November meeting “that the core inflation trend has slowed enough to make a final hike unnecessary”.

“Normalisation 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 Goldman economists wrote.

“We are pencilling in 25 basis points of cuts per quarter but are uncertain about the pace.” 

Last week, data showed inflation in the US rose at a slower-than-expected headline rate of 3.2 per cent, with the core consumer price index – which strips out energy and food costs –

running at a 4.7 per cent annual pace.

Fed policymakers in March 2022 began ramping up their target for the benchmark rate to a range of 5.25 per cent to 5.5 per cent. 

“We expect the funds rate to eventually stabilise at 3 per cent to 3.25 per cent,” the team from Goldman wrote. BLOOMBERG