The Federal Reserve is anticipated to persist in cutting interest rates at least through December, with views expressed by Goldman Sachs suggesting that speculation regarding a possible pause is 'premature.' In September, the central bank's Federal Open Market Committee (FOMC) made a notable move by lowering interest rates by 50 basis points, setting the range at 4.75% to 5%.
This marked the first rate reduction since March 2020, while a consensus compiled by Bloomberg had initially predicted a smaller cut of just a quarter percentage point. Post-meeting, the FOMC stated, 'The committee has gained greater confidence that inflation is moving sustainably toward 2% and judges that the risks to achieving its employment and inflation goals are roughly in balance.' Looking ahead, the FOMC is set to commence its two-day meeting this Wednesday, and financial markets generally expect the committee to implement an additional reduction of a quarter percentage point on Thursday, as indicated by the CME FedWatch tool. Goldman Sachs indicated in a note to clients on Monday, 'We expect a (25-basis-point) cut at the November FOMC meeting and see market discussion of an upcoming skip as premature.
We anticipate cuts to remain consecutive at least through December.' The brokerage also highlighted that Fed officials are likely to seek several months of stabilization in the job market before feeling 'relaxed entirely about risks there.' Furthermore, they acknowledged that 'some have said that the high level of the funds rate is having a restrictive effect on the economy' and may want to lower it further prior to slowing the pace. The Summary of Economic Projections published by the FOMC in September revealed a reduction in the members' median outlook for the federal funds rate from 2024 through 2026 along with an increase in unemployment rate expectations.
Recent official data showed that US consumer inflation accelerated at a faster-than-expected rate in September, both on a sequential and annual basis. Additionally, on Friday, data from the Bureau of Labor Statistics indicated that job creation in the US fell significantly short of Wall Street's expectations for October, largely due to an ongoing strike at Boeing and potential disruptions related to hurricanes. Looking ahead, Goldman Sachs noted, 'We are penciling in four more consecutive cuts in the first half of 2025 to a terminal rate of (3.25% to 3.5%), but see more uncertainty about both the speed next year and the final destination.
If the unemployment rate holds steady or falls and the activity and job growth numbers remain solid for a while, then an every-other-meeting pace could become a plausible alternative path.'.