Goldman Sachs: The Federal Reserve is unlikely to cut rates in January next year!

Goldman Sachs economists believe that the Federal Reserve may signal a slowdown in future rate cuts at its meeting later this week, potentially skipping a rate cut in January next year.

While this American bank expects the Federal Reserve to still cut rates by 25 basis points on Thursday, recent comments suggest a 'clear' desire from the Federal Reserve to curb the pace of rate cuts, with the terminal rate likely higher than initially expected. Economists at Goldman Sachs, including Jan Hatzius, wrote in a report released last Sunday that this is because the unemployment rate will be lower than the Federal Reserve's forecast for 2024, and the inflation rate remains above target.

Goldman Sachs economists also pointed out that Federal Reserve officials have expressed a more open attitude toward the final interest rate and may be cautious about where to stop rate cuts.

They wrote, 'The key question in the statement and press conference is whether the Federal Reserve emphasizes slowing the pace of rate cuts or continues to rely on meeting-by-meeting decisions based on data; we expect to hear both messages, including the addition of a statement agreeing to slow the pace of rate cuts.'

After the inflation data in November showed stickiness, expectations for the Federal Reserve's interest rates have changed, and other data also indicates resilience in the labor market.

Goldman Sachs' view aligns with market pricing, which sees a 90% chance of a rate cut by the Federal Reserve this week, but has largely eliminated the possibility of another cut in January next year. Goldman continues to expect the Federal Reserve to cut rates in March, June, and September next year, with terminal rate expectations slightly raised to 3.5%-3.75%.

Economists wrote, 'Our baseline and probability-weighted Federal Reserve forecasts are more moderate than market pricing, a key reason being that we believe the risks to interest rates under potential policy changes in a second Trump administration are more two-sided than typically assumed.'

Article forwarded from: Jin Shi Data