Richie Hobson
Goldman Sachs still predicts that economic growth will outperform the market this year, and the Federal Reserve will cut interest rates by 50 basis points.
“We still expect a first rate cut in September, when we expect five consecutive rate cuts “Our conviction remains limited as we continue to view a rate cut as optional and we expect inflation news to warrant a reasonable but non-obvious decision to cut rates,” Chief Economist Jan Hatzius wrote in a note on Sunday. And FOMC participants have a variety of views.
“But we think the decision by other central banks to start cutting rates on the basis of the large but incomplete cumulative progress they have made so far on inflation increases the likelihood that the Fed will do the same,” Hatzius added.
He said: “We remain comfortable with our core economic forecasts that GDP growth will exceed expectations this year, the labor market will remain strong, and the remaining inflationary overshoot will eventually reverse without weakening the economy.”
“After September, we expect quarterly rate cuts to eventually reach 3.25-3.5%.”
“This means a second production cut in December, two cuts in 2024, four cuts in 2025 and two more cuts in 2026,” Hatzius said. “The upside risks to this model view (tariffs and Higher r*) and downside risks (recession) look broadly balanced, with our probability-weighted Fed forecast only slightly dovish than market pricing.”
