Goldman Sachs has projected that the U.S. Federal Reserve (Fed) will begin cutting interest rates by 25 basis points (bps) in November 2024, continuing through June 2025, bringing the terminal rate to a range of 3.25% to 3.5%. This outlook signals a significant shift in the Fed’s monetary policy after a prolonged period of rate hikes aimed at controlling inflation.
What the Fed Has Done So Far
The U.S. Federal Reserve has aggressively raised interest rates over the past couple of years to combat surging inflation. As of the latest data, the overnight rate, which influences the cost of borrowing for consumers and businesses, stands at 4.75%-5.00%. The Fed’s efforts have been aimed at cooling down economic activity and bringing inflation closer to its target of 2%.
Most recently, in a move that reflected growing confidence in inflation's downward trajectory, the Fed cut the overnight rate by 50 bps. This marked a shift in tone, indicating that the central bank now sees inflation moderating and is positioning itself to move towards an easing cycle.
According to CME’s Fedwatch Tool, market expectations align with Goldman Sachs’ projection, with a 94.1% probability that the Fed will cut rates by 25 bps at its next meeting. Only a small 5.9% chance remains for holding rates steady, suggesting that the market is firmly anticipating the start of a new cycle of rate reductions.
Comparison with Other Major Central Banks
The Fed’s expected shift toward rate cuts mirrors similar trends in other major economies, especially in Europe. Goldman Sachs has also forecasted that the European Central Bank (ECB) will begin cutting its rates by 25 bps during its upcoming monetary policy meeting. This follows a period of rate increases by the ECB, which had been trying to control inflation across the eurozone.
Goldman expects the ECB to continue with sequential rate cuts, reducing its policy rate to 2% by June 2025. This timeline reflects a similar approach to the Fed’s anticipated easing, although the ECB is targeting a slightly lower terminal rate.
While both central banks are preparing to ease monetary policy, there are differences in the pace and extent of these moves. The Fed's overnight rate is currently higher than the ECB's, and its rate cuts are expected to occur over a longer period. The ECB, with a more fragile economic environment in parts of the eurozone, may act more swiftly but also end up with lower overall rates by mid-2025.
Industry Experts’ Expectations
Market experts are widely in agreement that the Fed’s actions will depend heavily on the continued trajectory of inflation and broader economic conditions. Should inflation stay on a steady downward path and economic growth weaken, the Fed is likely to follow through on its gradual rate cuts. A slow return to lower rates could help support a soft landing for the U.S. economy, avoiding a sharp downturn.
On the European side, the ECB’s cuts are also seen as a response to softening economic data and signs that inflation, although still above target, is receding.
In conclusion, the expected rate cuts by both the Fed and the ECB reflect a global pivot towards more accommodative monetary policy, as inflation pressures ease and central banks seek to support economic stability into 2025.
(Source:www.usnews.com)
What the Fed Has Done So Far
The U.S. Federal Reserve has aggressively raised interest rates over the past couple of years to combat surging inflation. As of the latest data, the overnight rate, which influences the cost of borrowing for consumers and businesses, stands at 4.75%-5.00%. The Fed’s efforts have been aimed at cooling down economic activity and bringing inflation closer to its target of 2%.
Most recently, in a move that reflected growing confidence in inflation's downward trajectory, the Fed cut the overnight rate by 50 bps. This marked a shift in tone, indicating that the central bank now sees inflation moderating and is positioning itself to move towards an easing cycle.
According to CME’s Fedwatch Tool, market expectations align with Goldman Sachs’ projection, with a 94.1% probability that the Fed will cut rates by 25 bps at its next meeting. Only a small 5.9% chance remains for holding rates steady, suggesting that the market is firmly anticipating the start of a new cycle of rate reductions.
Comparison with Other Major Central Banks
The Fed’s expected shift toward rate cuts mirrors similar trends in other major economies, especially in Europe. Goldman Sachs has also forecasted that the European Central Bank (ECB) will begin cutting its rates by 25 bps during its upcoming monetary policy meeting. This follows a period of rate increases by the ECB, which had been trying to control inflation across the eurozone.
Goldman expects the ECB to continue with sequential rate cuts, reducing its policy rate to 2% by June 2025. This timeline reflects a similar approach to the Fed’s anticipated easing, although the ECB is targeting a slightly lower terminal rate.
While both central banks are preparing to ease monetary policy, there are differences in the pace and extent of these moves. The Fed's overnight rate is currently higher than the ECB's, and its rate cuts are expected to occur over a longer period. The ECB, with a more fragile economic environment in parts of the eurozone, may act more swiftly but also end up with lower overall rates by mid-2025.
Industry Experts’ Expectations
Market experts are widely in agreement that the Fed’s actions will depend heavily on the continued trajectory of inflation and broader economic conditions. Should inflation stay on a steady downward path and economic growth weaken, the Fed is likely to follow through on its gradual rate cuts. A slow return to lower rates could help support a soft landing for the U.S. economy, avoiding a sharp downturn.
On the European side, the ECB’s cuts are also seen as a response to softening economic data and signs that inflation, although still above target, is receding.
In conclusion, the expected rate cuts by both the Fed and the ECB reflect a global pivot towards more accommodative monetary policy, as inflation pressures ease and central banks seek to support economic stability into 2025.
(Source:www.usnews.com)