Goldman Sachs Expects Fed to Pivot, Slashing Rates to Boost Economy

According to Goldman Sachs economists' predictions on Monday, the Federal Reserve is anticipated to begin reducing its benchmark interest rate in March and to do so five times in total in 2024.

The investment bank anticipates a "soft landing" for the US economy this year, with growth in GDP gradually moderating and inflation continuing to decline. According to Goldman, the central bank will progressively lower interest rates, which would lower the cost of borrowing money for both individuals and companies.

Goldman Sachs Forecasts Five Fed Interest Rate Cuts in 2024, Beginning March

Economists at Goldman Sachs anticipate that the Federal Reserve will commence a series of interest rate cuts, totaling five throughout 2024, with the first expected in March. The investment bank envisions a "soft landing" for the U.S. economy, characterized by a gradual slowdown in economic growth and a continuous decline in inflation throughout the year.

Goldman Sachs projects the central bank to methodically lower interest rates, thereby steadily reducing borrowing costs for both consumers and businesses.

Despite maintaining the federal funds rate at a 22-year high in the previous month, signaling confidence in the economy, the Fed has left room for potential rate hikes if inflationary pressures resurge. The central bank's decision aligns with its aim to manage price and wage increases.

Federal Reserve Chair Jerome Powell, discussing the December decision, highlighted that the "appropriate level [of the federal funds rate will be 4.6% at the end of 2024" if economic projections hold.

Goldman Sachs' economist Jan Hatzius emphasized the likelihood of the Fed initiating rate cuts soon, particularly in March, citing Chair Powell's indication that the committee intends to cut rates "well before" inflation reaches 2%. However, Goldman Sachs expects a total of five cuts in 2024, a more conservative estimate compared to the six-to-seven cuts currently priced into the market. The likelihood of 50 basis point increments is viewed as low by the investment bank.

The current range for the federal funds rate, which banks charge one another for overnight loans, is 5.25% to 5.5%. A five-period decrease of 25 basis points would reduce the benchmark to 4.25% from 4%.

How Will This Affect Consumers?

The good news is that high-interest savings accounts may now give annual percentage rates of 5% or more, which is a huge benefit for savers and one benefit of the drastically higher borrowing costs. Those returns will probably decrease as interest rates decline.

Additionally, some banks are providing certificates of deposit (CS) that pay APYs close to 5% for up to five years; these rates are anticipated to drop once Fed easing efforts begin, so investors may wish to lock in higher rates now by putting money in longer-term CS.

Prospective homebuyers, sellers, and refinancers are all wondering how low mortgage rates may go given the possibility of reduced rates and borrowing costs. A recent study revealed that about 31% of respondents, which is a more optimistic opinion than last month, believe that house loan borrowing rates would decrease over the next 12 months.

Mortgage rates typically match the yield on the 10-year U.S. Treasury notes, but they don't always follow the Fed's rate movements. The demand for Treasury securities globally, investor expectations for future inflation, and Fed policies all affect home loan rates.