Final Fed Rate Hike Looms, But Top Wall Street Analyst Predicts A Year-Long Wait Before Rate Cuts
A prominent investment bank located on Wall Street foresees the Federal Reserve putting an end to their interest rate hikes following the July gathering. However, the bank advises investors against expecting a reduction in interest rates anytime soon.
Goldman Sachs predicts that the forthcoming increase in interest rates during the July gathering of the Federal Reserve is anticipated to mark the end of the present phase. This increase will result in rates ultimately reaching 5.25%-5.5%.
According to David Mericle, the bank's U.S. economist, the decrease in core CPI inflation to 4.8% in June is viewed as a significant moment in the inflation story. It came as a surprise, as it dropped more than anticipated.
Economists at Goldman Sachs are of the opinion that when inflation decreases, most of the board will eventually favor the decision to forgo a rate increase in September.
According to Goldman Sachs, core inflation is expected to decrease even more by the time of the November meeting, which may cause the Federal Open Market Committee (FOMC) to not think a second increase is necessary.
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U.S. Inflation Slows Down Dramatically
No Rate Cuts Coming Soon
In contrast, Goldman Sachs holds the belief that reductions in interest rates will not occur in the near future.
According to the bank's forecast, the Federal Reserve is expected to adopt a more aggressive approach than what the market anticipates. As a result, the initial reduction in interest rates may occur as late as the second quarter of 2024.
There are three main reasons why this perspective is supported: the slim chance of a U.S. economic downturn, the strict criteria for reducing interest rates due to a strong economy and low unemployment rate, and a careful strategy for reducing rates since rapid cuts without a recession lack convincing justification.
Goldman Sachs also accepts that going forward, the FOMC may not opt for reducing interest rates if the economy continues to outperform expectations, unemployment rates hit record lows, and financial conditions improve even more.
The bank gives a significant chance (30%) to the situation where there are no reductions in interest rates next year.
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