Goldman Sachs economists now think the Fed will wait until September to cut rates, revising the investment bank’s previous call for a July cut.
Breitbart News has reported that recent statements from Fed officials suggest that a rate cut would require not only improved inflation numbers but also clear signs of economic or labor market weakness. Goldman’s new analysis agrees that data released Thursday showed lower weekly jobless claims and stronger purchasing managers index (PMI), making a July cut seem unlikely.
“Earlier this week, we noted that comments from Fed officials suggested that a July cut would likely require not just better inflation numbers but also meaningful signs of softness in the activity or labor market data,” the Goldman economists, led by Jan Hatzius, wrote in a note.
The market reacted negatively to the labor market and PMI data, with U.S. stocks taking a hit. The Dow Jones Industrial Average saw its steepest drop in over a year, and bond yields rose.
Goldman Sachs had been one of the few Wall Street banks clinging to a forecast for a cut in July. Most of the banks are now forecasting a cut in September or December. Breitbart Business Digest, our free daily newsletter, has warned that the Fed is unlikely to cut interest rates at all this year and may begin raising rates next year.
Goldman’s chief executive, David Solomon, said this week that he is predicting zero cuts this year, according to Bloomberg News. The views of economists at Wall Street banks do not necessarily reflect the views of their executives, traders, or investment advisors.
“I still don’t see the data that’s compelling to see we’re going to cut rates here,” Solomon said.
Goldman’s economics team notes that the timing for the first rate cut remains uncertain.
“We view rate cuts as optional, reducing the urgency,” they said. “Inflation may improve by September but won’t be perfect, keeping the decision to cut rates ambiguous.”
The minutes of the Fed’s meeting that ended on May 1 showed that some officials are worried that current rates might not be as restrictive as they previously thought. Some said that they are willing to raise rates further if inflation continues to rise, although most expect that is an unlikely outcome.
Goldman’s updated forecast is still more aggressive than the broader market. The federal funds futures market currently prices in even odds of a cut in September and just a 12.3 percent chance of a cut in July. There’s a 63 percent chance of a cut at the Fed’s November meeting and an 83 percent chance of a December cut, according to the CME’s FedWatch tool, which calculates the implied odds of a cut based on futures prices.
President Biden has been predicting the Fed will cut rates later this year.
“I can’t guarantee it. But I bet — you betcha — those rates come down more, because I bet you that that little outfit that sets interest rates, it’s going to come down,” Biden said in a speech in Philadelphia in March.
In April, Biden reiterated this prediction even after government data showed inflation was rising faster than expected.
