Goldman Sachs anticipates the FOMC will implement a 25 basis point rate cut at its September meeting, viewing recent comments from Fed officials as indicative of a preference for this move over a larger cut. The focus will shift towards labor market risks, and the firm expects to see a median dot plot implying three rate cuts in 2024.
Key Points:
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Rate Cut Expectation:
- Goldman Sachs forecasts a 25bp rate cut at the September meeting.
- A 50bp cut is seen as a reasonable precaution but is less likely given recent Fed communications.
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Labor Market Focus:
- The meeting will highlight risks related to the labor market.
- Concerns exist regarding whether labor demand can absorb new entrants and prevent the unemployment rate from rising.
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Future Rate Projections:
- Expectation of three 25bp cuts in 2024, with a terminal rate projected between 3.25% and 3.5%.
- The median dot plot will likely indicate a gradual path towards 4.625% in 2024 and 2.875% by 2027.
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Economic Projections:
- Anticipated changes include higher GDP growth for 2024, a higher unemployment rate path, and a lower inflation trajectory.
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Risks to Forecast:
- Risks to the baseline forecast are tilted to the downside but less severe than what current market pricing suggests.
Conclusion:
Goldman Sachs expects the FOMC to proceed with a 25bp cut while emphasizing labor market risks. The meeting is likely to provide updated economic projections and a dot plot that reflects a cautious but structured approach to future rate cuts, aligning with a focus on maintaining economic stability amid evolving labor market dynamics.
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