Goldman Sachs expected that the U.S. Federal Reserve would start cutting the funds rate in the second quarter of 2024, but warned that there was a serious possibility that rates would remain unchanged if inflation did not moderate quickly enough.
Goldman predicted in its economic analyst report published on Saturday that rates would begin to decline by 25 basis points every quarter beginning in the second quarter next year and stabilize between 3% and 3.25%. This forecast is higher than the FOMC’s median long-term mark of 2.5%.
The investment firm also predicted that year-over-year and annualized core PCE inflation will be less than 3% and 2.5%, respectively.
“The motivation for cutting outside of a recession would be to normalize the funds rate from a restrictive level back toward neutral once inflation is closer to the target,” Goldman Sachs said on Saturday.
But Goldman warned that the Fed might be hesitant to lower interest rates since inflation might not fall far enough, and even if it did, robust economic expansion, a tight labor market, and further softening of financial conditions might make a rate decrease look like an unnecessary risk.
