- Goldman Sachs economists have updated their predictions on when the Federal Reserve will cut interest rates.
- Federal Reserve officials, including Gov. Christopher Waller and Philadelphia Fed President Patrick Harker, hinted that there is no immediate need to cut interest rates.
- Market forecasts based on futures market pricing indicate a 20% probability of an interest rate cut in May and a 70% probability in June.
The economists at the banking giant Goldman Sachs have disclosed their predictions on when the U.S. Federal Reserve will make interest rate cuts.
Goldman Sachs Reveals Interest Rate Predictions
Goldman Sachs economists have updated their predictions on when the Federal Reserve will cut interest rates. Initially, they expected five rate cuts in 2024, but they have reduced it to four cuts and anticipate the first cut to happen in June, earlier than previously expected. This change came after considering the comments of Federal Reserve officials and the latest minutes from policy meetings.
Federal Reserve officials, including Gov. Christopher Waller and Philadelphia Fed President Patrick Harker, hinted that there is no immediate need to cut interest rates. They want to see more progress in reducing inflation before taking any steps. Their comments indicate that the Fed is not in a rush to cut rates, especially with only a few inflation reports available before their next meeting in May.
Fed officials are currently focusing on two key changes in their approach. First, they noticed a reduced concern about the negative effects of persistently high interest rates. They believe that most of the main risks from previous rate hikes are behind them, reducing the urgency for interest rate cuts.
Second, before considering rate cuts, they want clearer evidence that inflation is approaching the 2% target. This marks a change from the previous stance, indicating a shift in thinking that rate cuts could happen “well before” inflation reaches the 2% level.
Despite considering January inflation data as an exception, Goldman Sachs predicts that core inflation will drop to 2.5% by the Federal Open Market Committee meeting in May and decrease to 2.2% in June.
Four Interest Rate Cuts in 2Q 2024
According to these predictions, Goldman Sachs expects interest rate cuts in June, July, September, and December of 2024 and revises it to four cuts in 2025 from three. This shows that there is no change in their terminal rate views, remaining between 3.25% and 3.5%. Similarly, UBS revised its forecast and expects a total of 75 basis points in interest rate cuts starting in June this year.
Market forecasts based on futures market pricing indicate a 20% probability of an interest rate cut in May and a 70% probability in June. The Federal Reserve’s cautious approach indicates prioritizing the fight against inflation and economic stability before making any interest rate cuts.
Despite the potential delay in interest rate cuts, Bitcoin’s potential bullish note after possible rate cuts in 2024, following the Bitcoin Halving, could be significant. With the Halving expected to push the Bitcoin price above $69,000, interest rate cuts after April could propel the Bitcoin price to new highs.
In the ongoing recovery process, the BTC price is trading above $50,000, just 26% away from its all-time high. Therefore, despite the potential delay in interest rate cuts, the coming months could be hopeful for Bitcoin and the crypto industry.
