Fed unlikely to cut interest rates until 2024, says Goldman Sachs

Fed unlikely to cut interest rates until 2024, says Goldman Sachs

The Federal Reserve is unlikely to pivot and cut its benchmark interest rate until 2024 at the earliest as it tries to squash the highest inflation in four decades, according to strategists at Goldman Sachs.

The bank’s economists, led by Jan Hatzius, predicted in an analyst note on Monday that the US central bank will raise interest rates four more times between now and the end of 2023, eventually keeping them in a range between 4, 25% and 4.50% until 2024. .

The analyst’s note comes ahead of the Fed’s two-day meeting this week, during which Hatzius now sees policymakers approve a third straight interest rate hike of 75 basis points, triple the usual size.

Goldman Sachs then predicted that the Fed will deliver back-to-back half-percentage-point hikes in November and December, followed by a quarter-percentage-point hike in 2023 and a rate cut in 2024.

INFLATION ROSE FASTER THAN EXPECTED IN AUGUST, KEEPING PRICES VERY HIGH

Jerome Powell, Chairman of the US Federal Reserve, speaks during a news conference in Washington, DC on May 4, 2022. (Al Drago/Bloomberg via Getty Images/Getty Images)

“We see several reasons for the change of plan,” Hatzius wrote. “The stock market threatened to undo some of the tightening in financial conditions that the Fed had designed, the strength of the labor market reduced fears of excessive tightening at this stage, Fed officials now seem to want some faster progress and consistent to reverse overheating, and some may have reassessed the short-term neutral rate.”

Although Goldman economists, like many other experts, initially thought the Fed would scale back the size of rate hikes after July, that changed after August inflation data released last week came in hotter than expected. The consumer price index unexpectedly rose 0.1% in August from the previous month, dashing hopes of a slowdown. Annually, prices rose 8.3%, near the highest level since 1981.

Stocks fell sharply after the surprisingly hot report on fears of an even more aggressive situation. fedwith the Dow falling 1,276 points, the worst day since June 2020.

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Goldman Sachs

Goldman Sachs economists predict the Fed will raise interest rates four more times before the end of 2023. (Reuters/Andrew Kelly/File Photo/Reuters Photos)

Investors are already gearing up for the Fed’s policy setting meeting, which is scheduled for September 20-21.

Traders are betting that officials will approve another huge 75 basis point rate hike, the third of its kind this year, by the end of the meeting, though some in financial world I think central bankers could go even bigger with a full point raise.

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