Interest rates

Fed won’t cut interest rates until 2024, says Goldman Sachs

Balce Ceneta/AP/Shutterstock Manual / Balce Ceneta/AP/Shutterstock Manual

Amid four decades of high inflation, the Federal Reserve is expected to raise its interest rate by at least 75 basis points today, for the third consecutive time. And now Goldman Sachs strategists say the Fed won’t cut rates until 2024.

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“A third ‘unusually large’ hike would amount to a reversal of the plan Chair Powell outlined in July to slow the pace of tightening, despite little net surprise in the data,” said Jan Hatzius, chief economist. and head of global investment research at Goldman Sachs, said in a note sent to GOBankingRates. “We see several reasons for the change in plan: the stock market threatened to undo some of the tightening in financial conditions that the Fed had designed, the strength of the labor market has reduced fears of excessive tightening at this stage, Fed officials now appear to want a bit faster and more steady progress toward reversing overheating, and some might have reassessed the short-term neutral rate.

But some analysts have a different view. Hayden Hughes, co-founder and CEO of Alpha Impact, said: “With all due respect to my friends at Goldman Sachs, bankers are notoriously inaccurate in predicting what the Fed will do. The reason is simple: the The Fed makes data-driven decisions based on prevailing economic indicators in the weeks leading up to their meetings.”

Hughes told GOBankingRates that many compare this period to the early 1980s, when we saw sustained interest rates in the double digits.

“Even during this period, the rates have been lowered and raised over the years. The market is certainly forecasting sustained and continued interest rate increases through 2023, but anything beyond that is a guessing game,” he noted.

Investors are also awaiting the Fed’s quarterly projections for the economy, including unemployment and inflation indicators of the direction of potential future increases.

Goldman Sachs added that it expects increases of 50 basis points in November and December, bringing the funds rate to 4-4.25% at the end of the year, and added that the new projections economic “should show that the GDP [gross domestic product] growth significantly below potential this year and next year than in June, a slightly larger increase in the unemployment rate in the coming years and a little more inflation this year and next year.

Chris Terry, vice president of enterprise solutions at SmartFi, told GOBankingRates “today the Federal Reserve will raise rates by 75 basis points, markets will be mixed because it’s as expected.”

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However, he added that “inflation is out of control, and it is not enough to keep it under control. So I call it death by a thousand cuts with future rate hikes on the way.

“What does this mean for the consumer? Stock and crypto markets stalled, higher credit costs and until inflation is brought under control, more expensive food and energy. So cut cut cut for another six months? Who knows?”

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