Synopsis:

Goldman Sachs analyzes the implications of the Fed's recent 50bp rate cut, emphasizing the potential for a series of consecutive cuts and its effects on the USD.

Key Points:

1. 50bp Rate Cut Overview:

   • The Fed delivered a 50bp rate cut, framed by Powell as a commitment to maintain the economy's strength, without signaling that the Fed is behind the curve.

2. Dot Plot Insights:

   • The dot plot suggests that the leadership prioritized a larger cut despite preferences among some participants for a smaller one, indicating a consensus towards more significant easing.

3. Revised Rate Cut Forecast:

   • Goldman Sachs now expects a longer series of consecutive 25bp cuts from November 2024 through June 2025, reaching a terminal rate of 3.25-3.5%, adjusting from earlier forecasts.

4. Decision Factors for Future Cuts:

   • The choice between a 25bp and 50bp cut in November will likely hinge on the next two employment reports, underscoring the importance of upcoming labor market data.

5. USD Outlook:

   • While reaching the limits of USD downside from a dovish Fed is anticipated, Goldman Sachs' trading team maintains a medium-term bias for the USD to grind lower.

Conclusion:

The Fed's recent decision sets the stage for a prolonged easing cycle, with the potential for further cuts depending on economic indicators. Despite the outlook for a weaker USD, the extent of its decline may be limited as the market digests these changes.