Goldman Sachs predicted that the Federal Reserve might indicate a deceleration in interest rate reductions, beginning in 2025, this week, while also anticipating low chances for the bank to lower the rates in January due to rising concerns over stubborn inflation and a robust employment market.
The Fed is expected to enact a rate cut of 25 basis points in the upcoming meeting, totaling this year’s rate reductions to 100 basis points.
In a briefing note, the investment bank pointed out that although the unemployment rate has plummeted and inflation has exceeded the FOMC’s forecasts; the implications of these developments are not as significant as they seem.
Goldman also hinted at the possibility of the central bank exercising restraint amidst new policy initiatives from the Trump administration, particularly the imposed trade tariffs.
As attention centers upon this week’s Fed’s meeting, the central bank’s decision to either slow the pace of reductions or alternatively adopt a meeting-dependent and data-driven process will be closely watched.
The firm also anticipates the Federal Reserve to reduce rates in 2025 during the months of March, June, and September, with each cut estimated at 25 basis points. Due to fewer cuts in 2025, the terminal rate is predicted to be higher, resting between the range of 3.5% to 3.75% compared to the initial estimate of 3.25 to 3.5%.
Market participants, according to CME Fedwatch, have factored in an almost 80% possibility of the Federal Reserve maintaining rates in January.
