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RichHobson
Goldman Sachs is still looking for economic growth to outperform this year, with the Fed cutting rates by 50 basis points.
“We continue to expect the first rate cut in September, by which point we expect to have seen five straight months of better inflation news,” chief economist Jan Hatzius wrote in a note Sunday. “Our conviction remains somewhat limited because we continue to see cuts as optional, the inflation news we expect would make a decision to cut reasonable but not obvious, and FOMC participants have a range of views.”
“But we think the decisions of other central banks to begin cutting on the basis of the considerable but incomplete cumulative progress made to date on inflation raise the odds a bit that the Fed will do the same,” Hatzius added.
“We remain comfortable with our core economic forecasts that GDP growth will outperform expectations this year, the labor market will remain strong, and the remainder of the inflation overshoot will eventually reverse without the need to weaken the economy,” he said.
“After September, we expect quarterly rate cuts to a terminal rate of 3.25-3.5%.”
“This implies a second cut in December for a total of two cuts in 2024, four more in 2025, and two more in 2026,” Hatzius said. “The upside risks (tariffs and higher r*) and downside risks (recession) to this modal view look broadly balanced, and our probability-weighted Fed forecast is only slightly more dovish than market pricing.”