Goldman Sachs Bets Big: No More Rate Hikes In 2023, Wave Of Cuts In 2024

In a bold move, Goldman Sachs is betting against the prospect of further Federal Reserve interest rate hikes.

David Mericle, an economist at the firm, doubled down on this prediction in a recent note to clients.

As the Federal Open Market Committee (FOMC) gears up for its meeting Wednesday, the consensus is leaning towards the Fed holding off on rate hikes. But the real question is whether the Fed will hint at potential future hikes.

Goldman Sachs believes that the Fed may signal another hike down the road, but they’re skeptical that it will come to fruition. According to the investment bank, the economic momentum remains strong, with third-quarter GDP growth tracking at a robust 3.3%. This solid growth, however, hasn’t thrown the labor market or inflation off balance.

Goldman Sachs argues that as the labor market continues its rebalancing act and inflation remains in check, the Fed can afford to hit the brakes.

Goldman Sachs Predicts Gradual Rate Cuts

They firmly plant their flag in the “no more hikes” camp but acknowledge that not all members of the Fed committee may be on the same page.

The real intrigue lies in the “dot plot,” which is expected to reveal a narrow majority still favoring one more hike in 2023. Goldman Sachs anticipates rate projections for 2024 and 2025 to remain steady at 4.625% and 3.375%, respectively. They also predict a new 2026 dot showing a rate of 2.875%.

Goldman Sachs is wagering also on gradual rate cuts in 2024 as they believe we’ve weathered the storm of higher interest rates, and the economy won’t crumble without additional cuts.

But here’s the twist: if inflation continues its march toward the target, Goldman suspects most Fed officials will find it prudent to slowly lower the funds rate from what they see as a somewhat restrictive level.

The investment bank is projecting a total of 100 basis points in rate reductions for 2024, countering the prevailing sentiment of maintaining higher rates for an extended period, which has gained prominence in Wall Street circles in recent weeks.

Goldman Sachs maintains an optimistic outlook on the equity markets, forecasting a 5.6% increase in the S&P 500 Index, represented by the SPDR S&P 500 ETF Trust SPY, over the coming 12 months. Yet, the prospects for emerging market equities, monitored through the iShares Emerging Markets Index Fund EEM, are even more promising, with an expected 11.7% rise within a one-year timeframe.

Goldman Sachs Forecast

Summary of Economic Projections	2023	2024	2025	2026	Longer Run
Real GDP Growth
GS Forecast of September SEP	2.1	2.1	1.0	1.9	1.8
June SEP	1.0	1.1	1.8		1.8
Unemployment
GS Forecast of September SEP	3.9	4.4	4.4	4.2	4.0
June SEP	4.1	4.5	4.5		4.0
PCE Inflation
GS Forecast of September SEP	3.3	2.4	2.1	2.0	2.0
June SEP	3.2	2.5	2.1		2.0
Core PCE Inflation
GS Forecast of September SEP	3.5	2.5	2.2	2.0
June SEP	3.9	2.6	2.2
Fed Funds Rate (Median)
GS Forecast of September SEP	5.625	4.625	3.375	2.875	2.75
June SEP	5.625	4.625	3.375		2.5

Now Read: FOMC Meeting Preview: What Will The Federal Reserve’s Next Move Be?

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