Synopsis:

Following this week’s December FOMC meeting, Goldman Sachs maintains its call for three 25bp Fed rate cuts in March, June, and September 2025, despite a hawkish dot plot signaling only two cuts. Chair Powell’s dovish tone keeps the possibility of further easing alive.

Key Points:

• December FOMC Highlights:

  • The Fed delivered a 25bp cut, paired with a clear signal to slow the pace of future rate cuts.
  • The updated dot plot showed only two cuts in 2025, surprising markets that had expected three.

• Powell’s Dovish Lean:

  • Chair Powell reiterated dovish themes from his Jackson Hole speech, emphasizing data dependency and inflation progress.

• Market Reaction:

  • The bond market interpreted the meeting as hawkish, with 2025 rate cut expectations dropping from 50bp to 32bp.
  • Financial conditions tightened notably following the meeting.

Conclusion:

Despite a hawkish dot plot and tightening financial conditions, Goldman Sachs sticks to its forecast for three Fed rate cuts in 2025, contingent on further inflation moderation or a deterioration in the labor market. The March cut remains the first on its timeline, though incoming data will be critical.