VIEW: Goldman Look For Rate Cuts To Start In Q2 Of Next Year

The weekend saw Goldman Sachs write “our baseline forecast calls for the FOMC to start cutting the funds rate in 2024Q2. At that point, we expect core PCE inflation to have fallen below 3% year-on-year and below 2.5% on a monthly annualized basis. The motivation for cutting outside of a recession would be to normalize the funds rate from a restrictive level back toward neutral once inflation is closer to the target.”

• “Normalization is not a particularly urgent motivation for cutting, and for that reason we also see a significant risk that the FOMC will instead hold steady.”
• “We are penciling in 25bp of cuts per quarter but are uncertain about the pace.”
• “We expect the funds rate to eventually stabilize at 3.00-3.25%, above the FOMC’s 2.5% median longer run dot.”
• “We have long been skeptical that neutral was as low as widely thought last cycle, and larger fiscal deficits have arguably pushed it higher since.”
• “Fed officials could raise their longer run dots if the economy remains resilient with the funds rate at a much higher level or they could conclude - as a recent New York Fed blog post did - that the short-run neutral rate is elevated.”