Will Interest Rates Be Cut in 2024?
The Federal Reserve is now projected to start cutting interest rates in September rather than July, according to Goldman Sachs Group Inc. economists. This revision comes amidst indications that the U.S. economy remains too robust to warrant easing monetary policy just yet.
In a recent note, economists led by Jan Hatzius explained, “Comments from Fed officials suggest that a July cut would require not just improved inflation numbers but also significant signs of weakness in activity or labor market data.”
Treasury yields edged higher following data showing a larger-than-expected increase in durable goods orders for April, dampening hopes for a rapid onset of an easing cycle. The yield on 10-year notes rose by one basis point to 4.48%, nearing the highest level in over a week. Investors will gain further economic insight from the University of Michigan consumer sentiment gauge, expected later on Friday.
Goldman Sachs had been among the last major Wall Street banks predicting a July rate cut. Their revision aligns with a broader market sentiment that policymakers will adopt a cautious approach to easing, given the U.S. economy’s continued resilience.
Earlier this week, Nomura Securities also postponed their rate cut prediction from July to September, stating, “The threshold for rate cuts appears to have risen.” Goldman Sachs CEO David Solomon expressed an even more conservative outlook, indicating he does not anticipate any rate cuts this year.
Market pricing now suggests the first Fed rate cut will occur in December, with the likelihood of a second cut falling to less than 30%, down from about 70% last week. Initially, the market expected the first rate cut by March 2023.
Recent data revealed that U.S. business activity surged in early May at the fastest rate in two years. Federal Reserve Bank of Atlanta President Raphael Bostic noted that current monetary policy has been less effective in slowing growth compared to previous cycles, underscoring the necessity of maintaining higher rates for an extended period to control inflation.
U.S. Treasuries are poised for their first weekly loss this month. The yield on 10-year securities is just shy of the critical 4.50% mark that has attracted buyers, and it is about 60 basis points higher compared to the start of the year.
Fed minutes show a consensus among officials for maintaining higher rates for longer. Despite this, Goldman Sachs still forecasts two rate cuts in 2024, one per quarter, meaning the second cut would occur in December.
JPMorgan Chase & Co. and Citigroup Inc. are among the few remaining banks still predicting a July interest rate cut.
