The Federal Reserve is projected to persist in reducing interest rates at least through December, with speculation regarding a potential pause deemed as 'premature,' Goldman Sachs noted on Monday. In September, the central bank's Federal Open Market Committee lowered interest rates by 50 basis points to a range of 4.75% to 5%, marking its initial reduction since March 2020.
A consensus compiled by Bloomberg had indicated at that time a more modest quarter-percentage-point cut. The FOMC expressed confidence that inflation is moving steadily toward the 2% target and assesses the risks related to achieving its employment and inflation goals as approximately balanced. This statement was issued in September following their meeting. The FOMC is set to commence its two-day meeting on Wednesday, with markets broadly anticipating the committee to lower interest rates by a quarter percentage point on Thursday, per the CME FedWatch tool. Goldman Sachs anticipates a 25-basis-point cut at the November FOMC meeting and believes discussions about a potential pause as 'premature.' They predict that cuts will continue consecutively at least until December. Fed officials are reportedly aiming to observe several months of stability in the job market before easing concerns regarding the associated risks.
Furthermore, some officials suggest that the elevated level of the funds rate exerts a restrictive effect on the economy, indicating a desire to lower it slightly before contemplating a slowdown in cut frequency. The FOMC's Summary of Economic Projections revealed in September that members adjusted their median federal funds rate outlooks downward from 2024 to 2026 while elevating unemployment rate expectations. Recent official data indicated that US consumer inflation surged at a more-than-anticipated rate in September, both on a monthly and annual basis.
Last Friday, Bureau of Labor Statistics figures revealed that US job creation fell well below Wall Street's estimates for October, influenced by an ongoing Boeing strike and potential disruptions related to hurricanes. Goldman Sachs forecasts four additional consecutive cuts in the first half of 2025, targeting a terminal rate of between 3.25% and 3.5%.
However, they express uncertainty about both the pace of these adjustments next year and the final target. If the unemployment rate remains steady or decreases and both activity and job growth figures remain robust for a while, it could make an every-other-meeting cut pace a plausible alternative option..