Goldman Sachs: The Federal Reserve will not raise interest rates this year and will cut rates in the second quarter of next year.

Goldman Sachs analysts predict that the Federal Reserve will not raise interest rates again this year and will gradually lower them on a quarterly basis starting in the second quarter of 2024.

On Sunday local time, Goldman's analysts Jan Hatzius and David Mericle wrote in a report:

Once inflation approaches the target, the fund rate will transition from a restrictive level to normalization, so we have revised our forecast.

Goldman Sachs predicts that the Federal Open Market Committee (FOMC) will skip a rate hike next month and conclude at the November meeting that "the core inflation trend has slowed enough to make the last rate hike unnecessary."

In addition, Goldman Sachs predicts that the rate cuts will begin in the second quarter of 2024. Their analysts wrote:

Normalization is not a particularly urgent motivation for rate cuts, so we also see a significant possibility that the FOMC will maintain stability.

We expect a 25 basis point rate cut each quarter, but the pace is uncertain.

The Goldman Sachs team also wrote that they expect the fund rate to eventually stabilize at 3-3.25%. Since March of last year, the Federal Reserve has raised interest rates eleven times, bringing the fund rate to its highest level in twenty-two years at 5.25%-5.50%.

The inflation data released last week showed a continued cooling trend in US inflation: July CPI increased by 3.2% YoY, slightly faster than the 3.0% growth rate in June, but still lower than the expected growth rate of 3.3%. The core CPI, which excludes volatile food and energy prices, increased by 0.2% MoM in July as expected, marking the lowest consecutive monthly growth rate in over two years.

Regarding this inflation data, journalists such as Nick Timiraos from The Wall Street Journal, who are considered the "mouthpiece of the Federal Reserve" and referred to as the "new Federal Reserve News Agency," believe that the price pressures in July are still moderate, which may prevent the Federal Reserve from raising rates in September.

Dovish Federal Reserve officials, such as San Francisco Fed President Daly, have expressed caution, stating that the Federal Reserve still has more work to do to achieve its inflation target. She supports not prematurely predicting the Fed's future actions.

Earlier, Philadelphia Fed President Harker, known as the "strongest dove," stated that the US economy is heading for a soft landing. The Federal Reserve may be at a point where it can stop raising rates, but rates need to remain at a higher level for some time.