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Goldman Sachs has reiterated its forecast for two interest rate cuts in 2024, commencing in September, following the Federal Open Market Committee’s (FOMC) June meeting.
Despite the Federal Reserve’s June dot plot presenting “a hawkish surprise” with a median projection of just one cut in 2024, contrary to market expectations of two, Goldman Sachs economist David Mericle believes this does not rule out a September cut.
Mericle highlighted that Powell noted the cumulative progress on inflation, which has fallen from a peak of 7% to 2.7%.
The FOMC revised its statement to acknowledge “modest” progress toward the 2% target, a shift from the previous language indicating “a lack of” progress. Powell’s remarks reinforced the Fed’s recognition of ongoing improvements in inflation data.
On Thursday, the Bureau of Labor Statistics reported the lowest monthly inflation rate in eight months for the Producer Price Index, which tumbled 0.2% from April 2024 to May 2024, well below expectations.
Read also: Ice Cold Producer Inflation Data Sparks Economist Reactions: ‘More Data In The Correct Direction’
Following the FOMC meeting, market participants now assign a 64% probability to a rate cut in September and factor in cumulative 52 basis points of cuts by year-end, implying two fully priced rate cuts.
This increased optimism towards the likelihood for rate cuts pushed bond yields down and major U.S. equity indices to hit record highs on Thursday.
Long-dated Treasury bonds, as tracked by the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), are up over 2% for the week, eyeing the strongest performing week since January.
Mericle stated that if the next three rounds of inflation data align with recent trends, the Fed is likely to proceed with a rate cut.
According to Goldman Sachs, Powell made three significant comments during his press conference:
Read now: How May’s Inflation Slowdown Could Influence Fed’s Next Move: Insights From 6 Economists
Image generated using artificial intelligence via Midjourney.
Posted In: TLT