(Finance) – Goldman Sachs has moved the forecast for the Fed’s first rate cut of a meeting, from July to September. Earlier this week, analysts noted that comments from Fed officials suggested that a July cut would likely require not only better inflation numbers but also significant signs of weakness in activity or labor market data . After the strengthening of the PMIs in May and the decline in unemployment claims, this does not seem the most likely outcome.
The investment bank continues to expect a cut every quarter or every other meeting, which means the second cut will now happen in December. The shift in times does not change the expectation of two cuts in total in 2024.
It is noted that by the September meeting they will be four additional reports on the consumer price index are available and, if monthly core CPI inflation averages in the high 20s and core PCE around the low 20s, as expected, then most FOMC participants will support a rate cut.
Analysts interpret the recent ones comments by Chairman Powell as indicative of an intermediate path of gradual cuts, in recognition of both the considerable cumulative progress made in resolving the inflation problem and the fact that inflation is likely to remain significantly above target this year and the economy is doing well at the current level of interest rates.
“There timing of the first cut remains a difficult question for a few reasons – we read in the research – First, we continue to consider rate cuts as optional, which reduces their urgency. Second, inflation is likely to improve significantly by September, but it is unlikely to be perfect and will remain at a year-over-year rate that makes the decision to cut a less-than-obvious decision. Third, while the Fed leadership appears to share our relaxed view on the inflation outlook and will likely be ready to cut shortly, some FOMC participants appear even more concerned about inflation and more reluctant to cut.”