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GS Raise Their Fed Funds Equilibrium Rate 50bps

US OUTLOOK/OPINION
  • Goldman Sachs have raised their terminal or equilibrium fed funds rate forecast from 3-3.25% to 3.5-3.75%, along with increases for some other economies as well.
  • “We continue to expect that rates cuts will start in 2024Q4 and proceed at a pace of 25bp per quarter, but cuts now end in 2026Q2 under our revised forecast.” As our 2024 Global Macro Outlook explains, we are raising the equilibrium policy rate for some other economies as well.
  • “We think the impact of rate hikes is mostly behind us and see rate cuts next year as optional. We expect the FOMC to conclude that while neutral might not be as low as the 2.5% median longer run dot, it probably is not 5.25-5.5%, so some amount of normalization makes sense as inflation falls.”
  • “We expect the equilibrium rate to be higher than last cycle because the post-financial crisis headwinds are behind us, large fiscal deficits are likely to persist, the funds rate is approaching equilibrium from above, and the r* narrative is changing.”
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