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
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Goldman Sachs pushes Fed rate cut forecast to December 2026
The desk interprets Goldman Sachs' revised forecast for the Federal Reserve's rate cuts, now projected for December 2026, as a significant indicator of sustained inflationary pressures and a robust labor market. Per the full note [source], Goldman cites persistent inflation near 3%, driven by rising energy costs, as a key factor in delaying rate cuts. This shift suggests a more cautious approach from the Fed, which could keep upward pressure on Treasury yields and impact rate-sensitive sectors. The desk highlights that Goldman's terminal rate forecast remains unchanged at 3% to 3.25%, indicating a shallower easing path than previously anticipated by the market.
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The desk believes that the Federal Reserve is poised to implement another 25 basis point cut in December 2024, as outlined in MUFG's recent commentary on the macro landscape post-election. This anticipated move would complete a total of 100 basis points in cuts for the year, reflecting a dovish shift highlighted by the FOMC minutes that emphasize market functioning. Per the full note [source], the Fed's decision is likely influenced by the recent labor market trends, which show signs of deceleration, and the political context surrounding the election. The desk also anticipates further cuts in 2025, with a potential steepening of the interest rate curve as the market adjusts to the new administration's fiscal policies.
THINK Ahead: What markets are getting wrong on rate hikes
Lead — The desk posits that financial markets may be underestimating the likely persistence of rate hikes from central banks, particularly in the face of ongoing inflation pressures. Per the full note from ING Economics, the analysis suggests that the market is pricing in a quicker pivot to easing than may be warranted by economic fundamentals. Given the slow pace of inflation reduction and recent central bank communications, this perspective suggests a potential misalignment with actual policy trajectories. Traders should remain vigilant as this mispricing could lead to significant volatility in FX markets.
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