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Jun 10 - 09:55 AM

Goldman Sachs: June FOMC Meeting and Future Rate Cut Expectations

By eFXdata  —  Jun 10 - 08:30 AM

Synopsis:

Goldman Sachs provides insights into their expectations for the upcoming June FOMC meeting. They predict revisions in core inflation forecasts and potential changes in the dot plot for future rate cuts. The focus remains on maintaining flexibility in policy decisions, with a cautious outlook on inflation and economic growth.

Key Points:

  1. Inflation and Economic Projections:

    • Goldman Sachs expects the median forecast for 2024 Q4/Q4 core PCE inflation to increase by 0.2 percentage points to 2.8%.
    • GDP growth and unemployment rate projections are anticipated to remain largely unchanged.
  2. Dot Plot Revisions:

    • The median forecast in the dot plot is expected to show two rate cuts in 2024 (down from three in March) to a rate of 4.875%.
    • For 2025, the projection includes four cuts (up from three in March) to 3.875%, while 2026 remains unchanged with three cuts to 3.125%.
    • Fed leadership is likely to prefer showing two cuts in 2024 to retain policy flexibility, though a key risk remains that the median could show just one cut if the May core CPI print significantly exceeds expectations.
  3. FOMC Statement and Powell’s Message:

    • No significant changes are anticipated in the FOMC statement or Chair Powell’s message.
    • The communication is expected to emphasize a cautious approach, focusing on incoming economic data to guide future policy decisions.
  4. Rate Cut Timeline:

    • Goldman Sachs maintains their expectation for the first rate cut to occur in September, assuming five consecutive months of favorable inflation news.
    • Following the initial cut in September, they anticipate quarterly rate cuts, aiming for a terminal rate of 3.25-3.5%.
    • This forecast includes a second cut in December, totaling two cuts in 2024, followed by four cuts in 2025, and two more in 2026.

Conclusion:

Goldman Sachs expects the June FOMC meeting to project a modest increase in core PCE inflation while maintaining steady GDP and unemployment projections. The dot plot is likely to reflect two rate cuts in 2024, signaling a cautious yet flexible approach by the Fed. The anticipated communication from Chair Powell is expected to emphasize patience and data dependency. Looking ahead, Goldman Sachs foresees the first rate cut in September, with a series of quarterly cuts thereafter, guiding rates to a terminal range of 3.25-3.5% by 2026.

 
Source:
Goldman Sachs Research/Market Commentary

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