Goldman Sachs' latest analysis: The Federal Reserve will cut interest rates in December and two more times next year!

Goldman Sachs latest forecast predicts that the Federal Reserve will implement a third consecutive rate cut at its December meeting. The bank believes that the slowdown in inflation and cooling labor market provide policymakers with the space to further ease monetary policy. "Next year, the risk tends to be more rate cuts, as the news regarding core inflation has been favorable, while the deterioration in the job market... may make it difficult to curb inflation through the mild cyclical growth acceleration we expected." Goldman Sachs chief economist Jan Hatzius said in a report. Goldman Sachs also forecasts that the Federal Reserve will cut rates twice in 2026, in March and June, ultimately bringing the federal funds rate down to a range of 3.00%3.25%. The bank's baseline view is that the Federal Reserve will increasingly believe that the trend of slowing inflation will continue, and monetary policy does not need to be maintained at a clearly restrictive level. Goldman analysts suggest that the Federal Reserve may maintain a cautious tone in the short term, but the trajectory of core prices and wage growth indicates that the policy stance next year may gradually transition to a neutral level. In addition, Goldman points out that since the Federal Reserve began cutting rates, financial conditions have significantly loosened, which helps stabilize business borrowing costs and household credit flows. The bank predicts that by mid-2026, the Federal Reserve will complete its first substantive easing cycle since the adjustment period of the COVID-19 pandemic, by which time interest rates will be significantly lower than last year's peak levels, but still higher than the extremely loose levels of the past decade. At the time Goldman made the above forecasts, the expectation of a rate cut in December was significantly strengthened due to dovish remarks made by the New York Federal Reserve President Williams, who believed that there was still room for further rate cuts in the short term. According to CME FedWatch data, the market currently expects a 30.5% probability that the Federal Reserve will keep rates unchanged in December, while the probability of a 25 basis point rate cut has risen to 69.5%, compared to about 42% a week ago. However, in sharp contrast to Goldman Sachs, the other two major Wall Street banks, Morgan Stanley and JPMorgan Chase, both gave up their predictions for a rate cut in December after the September non-farm payrolls report. Data released by the U.S. Bureau of Labor Statistics last Thursday showed that non-farm payrolls unexpectedly increased by 119,000 in September, significantly higher than the market's expectation of 50,000. The unemployment rate rose from 4.3% in August to 4.4%, reaching a new high in 2021. In addition, the total number of new jobs added in July and August was revised down by 33,000. After the release of the September non-farm payrolls, Morgan Stanley quickly withdrew its previous prediction of a 25 basis point rate cut at the Federal Reserve's December meeting, citing the resilience of the economy shown in the jobs report. JPMorgan Chase subsequently followed Morgan Stanley in abandoning its prediction of a rate cut in December. This article is reproduced from "CaiLian Press", edited by GMTEight: Jiang Yuanhua.