(Reuters) – Goldman Sachs now expects two interest rate cuts from the US Federal Reserve (Fed) next year, with a first reduction in the cost of credit in the third quarter, in a context of slowing inflation.

The US investment bank previously predicted that the Fed would start cutting rates only in December 2024.

A two-time Fed rate cut would bring the federal funds rate to 4.875% at the end of 2024, down from a previous forecast of 5.13%.

Even though data released Friday showed the U.S. economy added more jobs than expected in November, traders continue to bet the Fed will cut interest rates in 2024 amid slowing inflation . They anticipate a first drop in the cost of money from March, according to the CME Group’s Fedwatch barometer.

“Strong growth and labor market data suggest that prospects for a (rate) cut are not imminent… But the more reassuring inflation news suggests that a normalization (of monetary policy) could intervene a little earlier,” writes Jan Hatzius, economist at Goldman Sachs, in a note published on Sunday.

Inflation data last month showed that U.S. consumer prices remained unchanged in October and the annual rise in core inflation was the smallest in two years.

Goldman Sachs says some Fed officials may “consider more rate cuts than before in response to inflation data, but others may choose to hold back to avoid encouraging the market to anticipate more rate cuts.”

“Our own inflation forecasts are a little lower, but members of the FOMC (Federal Open Market Committee) will probably still prefer to err on the side of optimism,” writes Jan Hatzius.

(Reporting by Reshma Rockie George in Bangalore, Claude Chendjou, editing by Kate Entringer)

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