Goldman Sachs no longer sees the Fed cutting interest rates this year
At a Glance
Lead — Goldman Sachs has shifted its expectation, now foreseeing no interest rate cuts by the Federal Reserve this year, pushing the first anticipated cut to June 2024. Per the full note source, the strong labor market and moderated unemployment projections contribute to this pivot. The desk interprets this development as significant amid current market positioning, especially given the recent non-farm payrolls data. With no high-impact events scheduled in the near term, traders should remain focused on macroeconomic indicators and their implications on rate expectations.
Key Takeaways
- 01Goldman Sachs now projects no Fed rate cuts in 2023, with potential cuts pushed to June 2024.
- 02Strong labor market data has influenced this shift in forecast, with an expected unemployment rate of 4.4%.
- 03This adjustment reflects broader economic views, shifting focus onto inflation metrics as the Fed's next critical benchmark.
Full Analysis
What the desk is arguing
Goldman Sachs has revised its forecast, now indicating that the Federal Reserve will not implement any rate cuts through 2023, with the first expected reduction postponed to June 2024. This marks a notable shift from their earlier outlook, where cuts were anticipated as early as December 2023. The desk frames this as a reaction to unexpectedly strong labor market performance, reflected in recent robust payroll figures.
The bank noted that stronger-than-expected job additions in May and a steady unemployment rate of 4.3% have prompted this adjustment, as they adjusted their unemployment projections slightly upward to only 4.4%. They also emphasize that core inflation pressures must remain subdued, pending the absorption of current geopolitical and supply chain challenges. The desk leans on this labor market resilience as a key driver for delayed rate adjustments.
In light of these developments, the desk is implicitly rejecting alternative interpretations that a cut may still occur this year due to persistent inflation or financial market stress. The current narrative emphasizes gradual normalization rather than aggressive easing.
Market Implications
Traders should monitor labor market data closely, particularly upcoming employment reports, as these provide insight into Fed policy direction. A sustained unemployment rate below 4.5% could signal continued Fed caution regarding rate cuts.
From the original
For some context, Goldman Sachs had already pushed back their rate cut call from September to December last month here . But with their latest bump, they now expect the Fed not to cut rates at all this year with the first move set to follow only in June next year. "We are pushing
Related speeches
4 itemsTop of the Morning: Fixed Income Strategist - Back to school prep
Lead — The desk emphasizes a cautious yet optimistic view on fixed income strategies amid potential Federal Reserve rate cuts, supporting a diversified asset allocation. Per the full note from UBS, the anticipated economic adjustments suggest a significant further easing of policy, with expectations of up to 100 basis points of cuts starting in September. The backdrop of a labor market imbalance, along with demographic shifts, creates a complex environment for fixed income. This sentiment aligns with broader market expectations, suggesting that strategic positioning will be critical in navigating upcoming volatility.
THINK Ahead: The case for rate cuts
The desk is positioning for potential rate cuts to re-enter the conversation sooner than expected. Per the full note from James Smith, the consensus among market participants seemingly discounts the prospect of easing until 2028; however, the desk believes this view underestimates the shifting economic indicators across the US, Europe, and the UK. With inflation remaining elevated at 4% and labor market recovery showing signs of faltering, there could be room for the Federal Reserve to pivot back to an easing policy next year. This contrasts with our internal coverage which suggests a focus on rate stability rather than cuts in the near horizon.