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Goldman Sachs anticipates four more cuts in 2025 and two additional cuts in 2026.
This forecast is influenced by the recent rate cuts by other central banks and the expectation of inflation easing, with core CPI inflation projected to average in the high 20s and core PCE inflation in the low 20s leading up to the September meeting.
The discussion also touches on the potential economic impacts of these rate cuts, including the possibility of a recession following the initial cuts.
Certainly. Let’s delve into the insights from the article and discuss them in the context of various famous books. The article discusses Goldman Sachs’ predictions regarding the Federal Reserve’s rate cuts.
Goldman Sachs expects the Fed to initiate its first rate cut in September, followed by another cut in December. They anticipate four more cuts in 2025 and two additional cuts in 2026.
This forecast is influenced by the recent rate cuts by other central banks and the expectation of inflation easing.
This scenario can be thought of in the context of Charles Dickens’ “A Tale of Two Cities.” Just as the novel explores the contrasts between London and Paris during the French Revolution, the current economic situation also presents a contrast between the actions of the Federal Reserve and other central banks.
While the Fed is expected to start cutting rates, other central banks have already begun the process. The discussion in the article also touches on the potential economic impacts of these rate cuts, including the possibility of a recession following the initial cuts.
This can be compared to the economic downturn in F. Scott Fitzgerald’s “The Great Gatsby.” The novel portrays the lavish lifestyle of the wealthy during the Roaring Twenties, followed by the economic collapse of the Great Depression. Similarly, the rate cuts could lead to a period of economic downturn.
At the June meeting, they expect the median forecast of 2024 Q4/Q4 core PCE inflation to rise 0.2pp to 2.8%. The GDP growth and unemployment rate projections should be little changed.
It appears that Goldman does not expect any significant changes to the FOMC statement or Chair Powell’s message.
Expect the median forecast in the dot plot to show two cuts in 2024 (vs. three in March) to 4.875%, four cuts in 2025 (vs. three in March) to 3.875%, and three cuts in 2026 (unchanged) to 3.125%.
We think the Fed leadership would prefer for the dots to show two cuts in 2024 to retain flexibility. But the key risk is that the median could instead show just one cut in 2024, especially if the May core CPI print comes in well above the 25bp forecast next Wednesday.
Goldman is probably relaxed about the Inflation outlook because core inflation has fallen most of the way to 2% and much of the remaining strength reflects lagged catch-up, not current cost pressures.
In conclusion, the article provides valuable insights into the Federal Reserve’s expected rate cuts and their potential economic impacts.
Just to note, whereas persistent post-financial crisis headwinds held the economy back in the last cycle, tailwinds from much larger fiscal deficits and resilient risk sentiments should be offsetting the impact of higher rates on the economy this cycle and argue for a terminal rate above the longer-run neutral rate.
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Originally published at https://chroniclebrews.substack.com.
