RichHobson
Goldman Sachs still expects economic growth to outperform this year, and the Federal Reserve cut rates by 50 basis points.
“We are still waiting for the first rate cut in September, by which time we hope to have seen five consecutive cuts. months of better inflation news,” chief economist Jan Hatzius wrote in a note on Sunday. “Our conviction remains somewhat limited because we still view cuts as optional, the inflation news we expect would make the decision to cut reasonable but not obvious, and the FOMC participants have a variety of views.”
“But we believe that decisions by other central banks to begin cutting based on the considerable but incomplete cumulative progress made to date on inflation somewhat increases the likelihood that the Federal Reserve will do the same,” Hatzius added.
“We remain comfortable with our baseline economic forecasts that GDP growth will exceed expectations this year, the labor market will remain strong and the remainder of excess inflation will eventually reverse without needing to weaken the economy,” he said.
“After September, we expect quarterly rate cuts to a terminal rate of 3.25-3.5%.”
“This implies a second cut in December for a total of two cuts in 2024, four more in 2025 and two more in 2026,” Hatzius said. “The upside (tariffs and higher r*) and downside (recession) risks to this modal view appear broadly balanced, and our probability-weighted Fed forecast is only slightly more dovish than market prices.”
