Goldman Sachs economists said in a Wednesday note they believe that Federal Reserve chair Jerome Powell and a narrow majority of the bank’s committee are unlikely to delay rate cuts for an extended period and are planning the first reduction at the June meeting.
“In fact, the somewhat higher inflation forecast—which is now 0.2pp above our own forecast of 2.4%—lowers the bar slightly for incoming inflation data to meet the FOMC’s expectations and keep a June cut on track,” analysts said.
“We continue to expect cuts in June, September, and December, for a total of 3 cuts in 2024,” they added.
Goldman’s team noted another key point from the March projections. Notably, they observed that the median longer-run neutral rate dot slightly increased to 2.56%, and the median terminal 2026 dot rose by 25 basis points to 3.125%.
These changes align with their perspective that over time, the Federal Open Market Committee (FOMC) will revise its estimates upwards for both the long-run and short-run neutral rates, indicating a terminal rate significantly above the previous cycle.
From Jerome Powell's press conference, the analysts distilled three main takeaways.
Firstly, Powell appeared unperturbed by the robust inflation data from January and February.
Secondly, despite the FOMC's significant upward revision of the 2024 GDP growth forecast, the Fed chairman attributed this stronger growth to a recent acceleration in labor supply growth, suggesting it doesn't contradict the rationale for rate cuts.
“Third, FOMC participants think it will be appropriate to slow the pace of balance sheet runoff “fairly soon”,” analysts wrote.