(Reuters) – Goldman Sachs now expects the US Federal Reserve (Fed) to cut interest rates only in the fourth quarter of 2024, compared to a previous forecast in the second quarter, according to new estimates from its economists.
The Fed on Wednesday kept its benchmark rate unchanged in the 5.25%-5.5% range and its projections showed it now only expects a 50 basis point reduction in the cost of credit next year , instead of 100 points initially.
“(Fed) officials appeared to move away from the view that tightening monetary policy could weigh on (US) growth with a long lag next year, weakening one of the arguments in favor of a cut (in rates)”, write economists at Goldman Sachs in a note under the direction of Jan Hatzius.
“We think this means inflation will have to fall more than we previously expected for the FOMC (Fed’s Monetary Policy Committee) to cut (rates).”
Barclays, for its part, expects a rate cut during the last three Fed meetings in 2024. Morgan Stanley, for its part, still predicts that the first rate cut will take place in March 2024.
The Fed’s quarterly projections showed that the federal funds rate could be raised again this year to the range of 5.50%-5.75%.
While Goldman and Morgan Stanley do not forecast another rate hike this year, Barclays, BofA and Citigroup estimate that the Fed should make another 25 basis point increase in the interest rate at the November meeting.
(Reporting Susan Mathew in Bangalore, Claude Chendjou, editing by Bertrand Boucey and Zhifan Liu)
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