Goldman Sachs Sees Three US Rate Cuts This Year, Terminal Rate At 3.00–3.25% In 2025
"Even though recession risks have increased from 15–20%, overall the (US) economy is in a decent shape, said Sunil Koul, Asia Pacific portfolio strategist at Goldman Sachs.
Market participants across the globe are betting that the US Federal Open Market Committee will cut rates three times in 2024, Goldman Sachs Asia Pacific Portfolio Strategist Sunil Koul said.
The investment bank expects the US rate-setting panel to cut rates by 25 basis points in September, the first time since it started its aggressive rate-hike campaign against soaring inflation in March 2022.
"The market is pricing in close to 100 basis-point rate cuts this year."Sunil Koul, Asia Pacific Portfolio Strategist, Goldman Sachs
Koul expects three cuts, one each in September, November, and December.
The target federal fund rate is currently 5.25–5.50% and is expected to ease to 4.25–4.50% by the end of 2024. Goldman Sachs estimates another three 25 basis point rate cuts on a quarterly basis in 2025, with a terminal rate of 3–3.25% in the US.
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Goldman Sachs' Asia Pacific Portfolio Strategist Sunil Koul was speaking to NDTV Profit's Executive Editor Tamanna Inamdar. (Source: NDTV Profit)
The US Federal Reserve Chair Jerome Powell's comments on the Jackson Hole annual gathering in Wyoming will be important. He may continue to reiterate that disinflation trends are in place, but the labour markets seem weak, Koul said. Both will be cues for the markets that rate cuts are on the horizon, he said.
The Fed Chair will speak at the annual summit at 10:00 a.m., New York time. Goldman Sachs is expecting Powell's remarks to be consistent with the three-rate cut scenario, he said.
There's another case where he can be more dovish if he says rates are too high. That could be an indication that rate cuts are imminent. Then, markets will price in more than 100-bps rate cuts, Koul said.
US Economy To Grow At 2–2.5% In H2FY24
Goldman Sachs' core view of the US economy is that it will continue to expand rather than experiencing a recession. The US economy may grow at a 2–2.5% run rate over the second half of the year.
"Even though recession risks have increased from 15–20%, overall the (US) economy is in a decent shape."Sunil Koul, Asia Pacific Portfolio Strategist, Goldman Sachs
The employment numbers are peaking, and there are weak job reports. Goldman Sachs believes that the weakness is coming from the supply side rather than the demand side.
The recent US retail sales data that came out was pretty decent. Though recession risks have increased from 15–20%, overall the economy is in decent shape.
Fed Rate Cycle Ending In Non-Recession
Looking at the last eight Fed rate cut cycles, four ended up in recession over the next 12 months. In non-recessionary Fed rate cut cycles, equity markets do well. That's good for emerging markets, including India, Koul said.
If the US economy continues to grow as Goldman Sachs has estimated, that should be better for sentiments overall, he added.
