Goldman Sachs and American Express recently cut rates on their high-yield savings accounts, which usually happens when they are confident the Federal Reserve will cut interest rates or shortly after the Fed cuts interest rates.
As we all know, the biggest market debate in 2024 is when, or even whether, the Federal Reserve will cut interest rates.
Against the backdrop of continued strength in the U.S. economy and still-high inflation, the market has recently significantly lowered its expectations for the Fed's rate cuts. This seems to indicate that the market is convinced that the Fed is wrong, the economy will be hotter than expected, and Powell will be forced to postpone or even abandon the easing cycle. But this may not be the case.
Some financial institutions are taking action. Last week, two financial giants quietly cut interest rates on high-yield savings accounts, a move they typically make when or shortly after the Federal Reserve is confident it will cut rates.
First up is Goldman Sachs. Last Wednesday, Goldman Sachs' consumer bank Marcus cut the interest rate on its high-yield savings account for the first time in more than three years, lowering the annual interest rate on the bank's flagship product to 4.4%, down from 4.5% in March. This is the first reduction since Goldman Sachs lowered the interest rate on its products from 0.6% to 0.5% in November 2020.
When asked by the media about the reason for the "rate cut", a Goldman Sachs spokesperson said in an email: "Our current interest rates are higher than most of our peers. We will continue to focus on providing value to our customers and growing our Marcus deposit business, which is the company's top priority."
The analysis by the agency points out that banks can only maintain the growth of their deposit business if the interest rates on high-yield savings accounts do not lead to deposit outflows. This can only happen if Goldman Sachs knows that everyone else will follow the Fed's footsteps and "cut interest rates."
This week, American Express also unexpectedly "cut interest rates", lowering the interest rate on its high-yield savings account from 4.35% to 4.30%. American Express also pointed out that the bank's interest rate is much higher than the national average in the United States, which can enable savers to enjoy higher returns.
Zero Hedge said that for "unknown reasons", the US banking industry suddenly set off a clear dovish wave. But the "rate cuts" of the two financial giants may not be for "unknown reasons". They started "rate cuts" because soon all other banks will follow suit, for a simple reason: the Federal Reserve will fire the starting gun for the easing cycle.
Institutional analysis pointed out that this move shows that financial institutions are wary of when they can lower personal loan interest rates, and the fact that two industry giants have done so is enough to draw attention to the Fed's interest rate cut plan.
It is worth mentioning that major Wall Street banks such as Goldman Sachs and Citigroup continue to expect the Federal Reserve to cut interest rates for the first time in June.
Doubts about the Fed's rate cut
With the U.S. labor force adding hundreds of thousands of illegal immigrants and core CPI still surging at an alarming rate of around 4%, many people (such as former U.S. Treasury Secretary Summers and Minneapolis Fed President Kashkari) are warning that the Fed does not need to cut interest rates, and even believe that raising interest rates may be wise.
On the other hand, a growing number of Democratic politicians, most notably Senator Elizabeth Warren, are asking Powell to cut rates to “help solve the housing crisis” and lower record-high credit card rates for their constituents.
Rate cuts are not only urgently desired by politicians, the Fed itself indicated in its latest dot plot that it still expects three rate cuts in 2024, a timeline that, given the November election, means that if the Fed wants to avoid delaying the start of its easing cycle, it must start cutting rates in June to avoid giving the impression that it wants to influence the election.
On the contrary, the market has recently significantly lowered its expectations for the Fed's rate cuts. After predicting more than six rate cuts this year at the beginning of the year, traders now believe that the number of rate cuts this year will be halved to three, even less than the Fed expected.
