Goldman pencils in the first Fed rate cut for the second quarter of 2024

(Bloomberg) — Economists at Goldman Sachs expect the Federal Reserve to start cutting interest rates by the end of next June, with a gradual quarterly pace of cuts starting from that point.

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“The cuts in our forecasts are driven by this desire to normalize the money rate from a constrained level once inflation approaches the target,” Goldman economists including Jan Hatzius and David Merkel wrote in a note dated Sunday.

Right now, the Goldman team is cutting interest rates to begin in the second quarter of 2024. The rate-setting Federal Open Market Committee is expected to edge higher next month, concluding at its November meeting that “the underlying inflation trend has slowed enough to make The final height is not necessary.

“Normalization is not a particularly pressing driver for a cut, which is why we also see a significant risk that the FOMC will stick around instead,” Goldman economists wrote. “We’re setting up 25 basis points of cuts each quarter but we’re not sure about the pace.”

Last week, data showed that US inflation rose at a slower-than-expected rate of 3.2%, with the core CPI – which excludes energy and food costs – at an annualized pace of 4.7%.

Fed policy makers began in March 2022 to increase their target for the benchmark rate to a range of 5.25% to 5.5%.

“We expect the money rate to eventually stabilize at 3-3.25%,” the Goldman team wrote.

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