The US Federal Reserve is likely to deliver a series of interest rate cuts next year, as financial conditions have eased, according to Goldman Sachs.

In its latest briefing, the investment banking firm said its economists now forecast the Federal Open Market Committee (FOMC) will impose three consecutive 25-basis-point reductions in March, May and June.

These are to be followed by quarterly cuts until the benchmark overnight borrowing rates reach a targeted range between 3.25% and 3.5%, which is 25 basis points lower than previously forecast.
Easing inflation

At the conclusion of its meeting on Wednesday, the FOMC decided to keep the federal funds rate steady at 5.25 to 5.5% amid easing inflation rate.

“Financial conditions eased further after the policy decision,” Goldman Sachs’ briefing noted.
“The large easing trend since October will prove durable now that the lower inflation path makes substantial rate cuts more likely next year.”

With the inflation easing, Goldman Sachs economists also bumped up their estimate for the Q4 2024 US GDP growth by 0.2 percentage points to 2%, up from 1.8%. That’s above the FOMC’s 1.4% forecast.

In a statement issued on Wednesday, the FOMC said that inflation has eased over the past year, although it remains elevated.

Inflation further eased to 3.1% in November, compared with 8% when the FOMC started increasing the rates in 2022.

While there are positive indicators, the Fed noted that it remains “highly attentive to inflation risks.”
“Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low,” the FOMC said.

“The US banking system is sound and resilient. Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation. The extent of these effects remains uncertain.”

(Writing by Cleofe Maceda; editing by Seban Scaria)

(seban.scaria@lseg.com)