Goldman Sachs Asset Management has forecasted that the U.S. Federal Reserve (Fed) will begin a series of interest rate cuts starting in November 2024. These cuts are expected to continue gradually until June 2025, ultimately bringing the federal funds rate down to a range of 3.25-3.5%. The firm expects each rate cut to be 25 basis points (0.25%), showing a steady approach to easing monetary policy over this period.
Timeline for Rate Cuts
According to Goldman Sachs Asset Management, the Fed will reduce rates in phases over several months. The rate reductions are expected to start in November 2024, with cuts happening consecutively through June 2025. Each reduction will be small, 25 basis points, but the cumulative effect is considerable. By mid 2025, the Fed’s rate is predicted to be between 3.25% and 3.5%, a notable drop from the current range.
Recent Fed Moves
The Federal Reserve cut the overnight Interest rate by 0.5% last month. This cut came as the central bank gained more confidence that inflation would continue to fall toward its long term target of 2%. The overnight rate, which influences borrowing costs for banks and, in turn, for consumers, currently stands between 4.75% and 5.00%. Goldman Sachs Asset Management sees these actions as the beginning of a broader trend toward lower rates.
Potential Market Impact
Goldman Sachs Asset Management’s forecast of interest rate cuts could have substantial implications for different areas of the economy:
- Mortgage and auto loan rates: Lower interest rates could result in reduced borrowing costs, making mortgages and car loans more affordable for consumers.
- Savings rates: On the other hand, savers could see a decrease in the interest they earn on their savings, as banks might lower their rates in response to the Fed’s actions.
These effects show how the predicted rate cuts could influence both borrowers and savers, depending on their financial goals.
Market Reactions
Current market sentiment aligns with the predictions from Goldman Sachs Asset Management. The CME FedWatch Tool indicates a 94.1% probability that the Federal Reserve will cut rates by 25 basis points in its next meeting. Only 5.9% of market participants expect the Fed to hold rates steady, suggesting widespread belief in the upcoming rate cuts.
European Central Bank’s Forecast
In addition to predicting rate cuts in the U.S., Goldman Sachs Asset Management also expects the European Central Bank (ECB) to follow a similar path. The firm anticipates that the ECB will cut interest rates by 25 basis points at its upcoming monetary policy meeting. These cuts are expected to continue until the ECB’s rate reaches 2% by June 2025, mirroring the gradual approach seen in the U.S. projections.
Inflation Concerns and Rate Adjustments
The main reason for these expected interest rate cuts is the effort to control inflation. The Federal Reserve has been raising rates to cool down inflation, but as inflation rates begin to stabilize, Goldman Sachs Asset Management sees room for the central bank to shift towards lower rates. The Fed’s confidence that inflation will drop to its 2% target is a main reason behind the gradual easing of monetary policy.
Conclusion
Goldman Sachs Asset Management’s forecast suggests that the Federal Reserve will take a cautious and steady approach to lowering interest rates, with cuts beginning in November 2024 and continuing through June 2025. By then, the federal funds rate is expected to fall to a range of 3.25% to 3.5%.
These developments could have wide reaching effects on loans, savings, and overall financial markets. As we move closer to the rate cut timeline, People will be closely watching the Fed’s actions and the overall economy, making this an important time for both investors and regular consumers.
