Wall Street Shreds Fed Forecasts As Goldman Sees Cut In March

(Bloomberg) -- Economists at some of Wall Street’s biggest banks are now calling for the Federal Reserve to roll out interest-rate cuts earlier and faster next year, emboldened after the central bank’s last meeting of 2023 set off fireworks across financial markets.

At Goldman Sachs Group Inc., economists see a steady course of interest-rate cuts that begins in March. Barclays Plc is now calling for three cuts in 2024, from just one seen ahead of this week’s Fed meeting. And JPMorgan Chase & Co. bumped its view on the start of the easing cycle to June from July.

Taken together, the shift is evidence that the latest bet for an aggressive monetary pivot from the Fed has gone mainstream. Treasuries across the curve on Thursday extended a rally that began after the Fed laid out projections for easier policy in 2024.

From here, Goldman’s economics team, led by Jan Hatzius, anticipates that the Fed’s preferred inflation gauge — the core PCE price index, which excludes volatile food and energy costs — will slow to 2.1% by the end of next year, effectively meeting the policy-setting Federal Open Market Committee’s 2% target.

“In light of the faster return to target, we now expect the FOMC to cut earlier and faster,” they wrote in a note. Goldman is now predicting 25 basis-point rate reductions for March, May and June, with further moves on a quarterly basis. The Wall Street bank previously forecast the Fed to start lowering rates only in the fourth quarter of 2024, with just one move next year.

The economists expect the Fed’s easing will end when the benchmark rate hits a target range of 3.25% to 3.5%. The current range, retained in Wednesday’s Fed policy decision, is 5.25% to 5.5%.

At Barclays, meanwhile, economists including Marc Giannoni and Jonathan Millar tweaked their rate-cutting forecast to align with central bank’s own economic projections. They now expect three quarter-point rate cuts next year, doled out at every other meeting starting in June. Previously they expected a single rate cut in December 2024.

The changes at JPMorgan, which sees the Fed cutting five times in 2024, were more subtle. Economist Michael Feroli bumped said the firm now forecasts policy easing starting in June, rather than July, because of improving inflation data and signaling from the Fed. 

On Wednesday, Fed policymakers projected three rate cuts for 2024 — one more than Goldman’s team had anticipated before the meeting. Chair Jerome Powell on Wednesday said that lowering rates is something that “begins to come into view and is clearly a topic of discussion out in the world and also a discussion for us at our meeting today.”

“The FOMC delivered a dovish message at its December meeting,” Goldman’s economists wrote. “But we learned more about the inflation outlook today than about the FOMC’s reaction function.”

(Updates throughout to include detail on Barclays and JPMorgan views.)

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