Interest Rate Cuts Could Occur in Mid-2024? Goldman Sachs Revises Forecast
Is relief on the horizon for borrowers? Goldman Sachs, a notable financial powerhouse, has updated its projections for interest rate cuts by the US Federal Reserve. The latest analysis suggests potential easing could begin sooner than previously anticipated.
Originally, Goldman Sachs economists expected the first Fed interest rate cut to happen in December 2025. However, they revamped that outlook in mid-December, significantly accelerating their predictions. This Goldman Sachs now projects two interest rate cuts by the U.S. Federal Reserve next year, advancing its expectation for the first cut to the third quarter, citing cooling inflation.
While previously forecasting a later start, Goldman Sachs has forecasted that the US Federal Reserve could initiate rate cuts starting from the third quarter (Q3) of 2025. This shift is driven by emerging signs of easing inflation and a desire to avoid overly restrictive monetary policy.
The expected rate cut, potentially twice as much as the one in 2025, is likely to happen as inflation rates ease. By the end of 2025, interest rates could dip to 4.875%. This revised timeline suggests a more proactive approach by the Fed to support economic growth as inflation cools.
The global landscape also plays a role. Emerging market (EM) cutting cycles have been underway for almost a year, with disinflation allowing an earlier start to policy easing. More recently, EM cutting cycles provide evidence that central banks are becoming more comfortable shifting towards accommodative monetary policies.
Two cuts would imply a Federal Funds Rate of 4.875% by the end of 2025, compared to its previous forecast of 5.13%. This highlights the magnitude of the revised outlook and the potential impact on borrowing costs for consumers and businesses. While data on Friday showed a stronger-than-expected labor market, Goldman Sachs is still confident in its assessment of the broader economic trajectory and its implications for monetary policy.
Stay tuned for further updates as the Federal Reserve continues to monitor economic data and deliberate on its future course of action. The possibility of interest rate cuts in mid-2024 remains a key focus for investors and economic observers alike.