Goldman Sachs: Postpones the Fed's first rate cut from July to September

Goldman Sachs has adjusted its expectations for the timing of the first rate cut by the Federal Reserve, postponing the previous judgment in July to September.

On Friday, Goldman Sachs analyst Jan Hatzius stated in the latest report:

Earlier this week, we pointed out that in order to push for a rate cut in July by the Federal Reserve, not only do we need to see better inflation data, but we also need to see significant signs of weakness in economic activity or the job market.

However, with the backdrop of stronger-than-expected manufacturing PMI data in May and a decrease in initial jobless claims, a rate cut in July is unlikely to materialize.

Goldman Sachs' latest forecast is in line with market expectations. According to the CME Group's FedWatch Tool, the probability of a rate cut in September is 54%, while the probability in July is only 12%.

Based on pricing in the options market, a rate cut by the Federal Reserve in December is fully priced in, with the probability of a second rate cut being less than 40%, compared to around 70% last week.

J.P. Morgan and Citigroup are among the few investment banks still predicting action in July.

Goldman Sachs maintains its expectation that the Federal Reserve will cut rates "once per quarter or every other meeting," which means the timing of the second rate cut has been pushed back from the previous expectation of October to December. Goldman Sachs' expectation of a total of two rate cuts by the Federal Reserve in 2024 remains unchanged.

Goldman Sachs stated:

Firstly, we continue to believe that rate cuts by the Federal Reserve fall into the category of "optional," so there is no need to rush.

Secondly, although inflation data may further improve by September, the year-over-year level remains above the 2% target, making the decision to cut rates at that time "less wise."

Thirdly, despite the relatively relaxed attitude of senior Federal Reserve officials and their readiness to cut rates shortly, some officials within the FOMC remain concerned about inflation and are cautious about cutting rates