Inflation in the US in October remained unchanged, while the growth of core inflation in annualized terms was the lowest in the last two years. According to Goldman Sachs analysts, this suggests that the normalization of monetary policy may come a little earlier.
Goldman Sachs predicts two interest rate cuts by the US Federal Reserve next year, with the first reduction in borrowing costs coming in the third quarter as inflation slows.
The US investment bank previously predicted that the Fed would not start cutting rates until December 2024.
Two Fed rate cuts would bring the federal funds rate down to 4.875% at the end of 2024, down from the earlier forecast of 5.13%.
Even though released data showed that the US economy created more jobs than expected, traders are still betting that the Fed will cut interest rates. According to CME Group's Fedwatch Barometer, they are predicting the first cut in the cost of money as early as March.
"Steady growth and labor market data suggest the prospect of a rate cut is inevitable". Goldman Sachs economist Ian Hatzius suggested in a note published Sunday that normalization (of monetary policy) could come a little sooner.
Goldman Sachs believes that while some federal officials may "consider cutting rates significantly more in response to the inflation data, others may prefer to refrain from stimulating the market in anticipation of more rate cuts".
"Although our own inflation forecasts have fallen slightly, FOMC (Federal Open Market Committee) members may still prefer to remain optimistic", writes Jan Hatzius.
Ultimately, the decision to cut interest rates will be made by members of the Federal Open Market Committee (FOMC) at their meetings. However, given the Goldman Sachs forecast, as well as market expectations, the probability of a Fed rate cut in 2024 is quite high.
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