Goldman Sachs Halts 2024 Fed Rate Cut Forecast

Goldman Sachs economists have revised their expectations for Federal Reserve interest rate changes, now forecasting no cuts this year. This adjustment follows a stronger-than-anticipated labor market performance, which has sustained economic activity.

Previously, the bank had projected rate reductions in 2024. Chief U.S. economist David Mericle stated that while a rate hike remains improbable, the likelihood of minor increases has risen to 20% from 10%, reflecting continued economic resilience and a more hawkish stance from some Fed officials.

Delayed Rate Adjustments

The revised forecast from Goldman Sachs pushes back the timeline for the final two anticipated rate cuts. These are now expected in June and December 2027, a delay from the prior prediction of December 2026 and March 2027.

Despite the strong jobs data, Goldman Sachs maintains that a sustained inflationary spiral is unlikely. The Fed’s long-term rate projections have remained consistent, with most policymakers viewing current policy as moderately restrictive and anticipating normalization as inflation subsides.

Economic Fundamentals and Outlook

May s U.S. job growth significantly exceeded all predictions, underscoring the labor market s ongoing strength. This robust employment picture has led some bond investors to price in a potential quarter-point Fed rate hike by December, causing a notable 5% decline in the Nasdaq 100.

Goldman Sachs also lowered its U.S. unemployment rate forecast for this year to 4.4% from 4.6%. The baseline for 2025 still includes two quarter-point cuts, though the probability for this outcome has decreased to 30% from 40%.

Implications for Future Policy

A prolonged period without rate adjustments could solidify the view that current rates are appropriately set. Furthermore, strong investment demand driven by artificial intelligence could bolster arguments for maintaining higher borrowing costs for an extended period.

Consequently, Goldman Sachs considers a flat rate path a plausible alternative to its current baseline forecast. The evolving economic landscape continues to influence central bank policy decisions, with data-driven adjustments remaining crucial.