Goldman Sachs sees Fed cutting rate sooner, deeper in 2024

December 14, 2023 (MLN): Goldman Sachs Group Inc. economists revised their outlook for the Federal Reserve in 2024, now anticipating a faster and steeper set of interest-rate cuts, as Bloomberg reported.

Goldman's economics team, led by Jan Hatzius, highlighted the disinflationary signal seen in Wednesday's producer price data, which showed gains slowing to less than 1% in November.

Combined with downward revisions to previous months, the implication is a softer pace of increases for the Fed's preferred price gauge, they said.

"We now forecast three consecutive 25 basis-point cuts in March, May, and June to reset the policy rate" from a level that Fed officials will likely soon see as too high, the Goldman economists wrote in a note.

Hatzius and his colleagues then see a quarterly pace of rate reductions, culminating in a target range of 3.25% to 3.5%.

The current range, retained for the third consecutive meeting in Wednesday's Fed policy decision, is 5.25% to 5.5%.

Along with the FOMC statement, the FED released new projections, wherein it expected the GDP growth to be higher this year, i.e. 2.6% as against 2.1% in the September projection, while in 2024 GDP growth is projected to be 1.4% as against 1.5% in the September projection.

The projections show a significant reduction in PCE inflation, which is forecasted to be 2.8% in 2023 as against 3.4% in September projections. Moreover, it is forecasted to be 2.4% in 2024, 2.1% in 2025, and 2% by the end of 2026.

The median Federal funds rate is now projected to be 4.6% in 2024, down from 5.1% in September's projections, implying 75bps rate cuts.

To recall, the US consumer price index (CPI) for the month of November 2023 rose by 3.1% YoY, as compared to the 3% YoY numbers in October.

Meanwhile, on a sequential basis, US CPI rose by 0.1% MoM as compared to 0% MoM in the previous month.

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