Goldman Sachs CEO David Solomon predicts that there will be zero Federal Reserve cuts in 2024 [fa3b8a63]. Solomon believes that the US economy is in a slightly more fragile place than a soft landing and that government spending and AI investment are dampening the impact of higher rates on the US economy [fa3b8a63]. He also sees the global economic environment as slow and sluggish [fa3b8a63]. Solomon stated that he does not expect the Federal Reserve to cut interest rates this year [5040702b] [f40f154f]. Solomon's comments came after Federal Reserve policymakers suggested waiting several more months before cutting rates to ensure inflation is back on track [f40f154f]. Solomon believes that the U.S. economy is fundamentally strong, but not all Americans are experiencing growth or the impact of inflation in the same way [7b054ec4] [f40f154f]. Solomon mentioned that inflation is cumulative and cited a conversation with the CEO of a grocery chain who has seen customers cutting back on purchases due to rising prices [7b054ec4]. He also expressed concern about headwinds to global growth, including inflationary pressures and geopolitical concerns [5040702b] [7b054ec4]. Solomon expects interest rate cuts in Europe this year due to a sluggish economy [5040702b] [7b054ec4]. Solomon called for a broader approach to industrial policy in the United States, particularly in terms of generating power and supporting the adoption of AI technologies [5040702b] [7b054ec4] [f40f154f].
Federal Reserve Bank of Boston President and CEO Susan Collins, on the other hand, believes that the US economy has a good shot at achieving the Goldilocks economy, where full employment and stable consumer prices coexist [afd54d88]. Collins is optimistic that inflation will be brought down while the labor market remains healthy [afd54d88]. She monitors key data and talks to local businesses and consumers to gain a comprehensive understanding of the economy [afd54d88]. The Federal Reserve is considering rate cuts but will rely on data to determine the appropriate timing [afd54d88]. Collins sees a solid economy overall but acknowledges differences across sectors and regions [afd54d88]. She believes there is a risk of a slowdown if rates are held too long, but also recognizes the risk of raising rates prematurely [afd54d88]. Collins expects the economy to achieve a soft landing and remains cautiously optimistic about bringing down inflation while maintaining a healthy labor market [afd54d88].
Goldman Sachs is still looking for economic growth to outperform this year, with the Fed cutting rates by 50 basis points [24c57521]. Chief economist Jan Hatzius expects the first rate cut in September, after seeing five straight months of better inflation news [24c57521]. Hatzius believes that the decisions of other central banks to begin cutting rates raise the odds that the Fed will do the same [24c57521]. Goldman Sachs expects quarterly rate cuts to a terminal rate of 3.25-3.5% after September, with a second cut in December and a total of two cuts in 2024, four more in 2025, and two more in 2026 [24c57521]. The upside risks (tariffs and higher r*) and downside risks (recession) to this forecast are broadly balanced [24c57521]. The probability-weighted Fed forecast is only slightly more dovish than market pricing [24c57521].
Wall Street economists are forecasting two rate cuts this year from the U.S. Federal Reserve Board, followed by more rate relief in 2025 [f7b7135c]. The U.S. Securities Industry and Financial Markets Association (SIFMA) conducted a mid-year survey of chief U.S. economists at 20 large financial firms, projecting U.S. GDP growth at 1.6% this year and 2.0% next year [f7b7135c]. The majority of economists anticipate two rate cuts from the Fed this year and four cuts next year [f7b7135c]. Over half of respondents expect the cuts to total 100-175 basis points by the end of 2025 [f7b7135c]. Over 50% of economists expect a rate cut in September, two-thirds expect a cut in November, and over 85% see a rate cut by December [f7b7135c]. The economists also raised their inflation forecast, estimating the core rate will finish the year at 2.8% [f7b7135c].
Barry Eichengreen, Professor of Economics and Political Science at the University of California, believes that the US Federal Reserve (Fed) will not surprise markets in an election year [51de7968]. Eichengreen suggests that there is still a risk of persistent inflation above target, so the Fed will wait to see better numbers before cutting rates a second time, likely next year [51de7968]. He also mentions that if Donald Trump is re-elected, he may pressure the Fed to not raise interest rates to counter inflationary pressures caused by import tariffs [51de7968]. Eichengreen advises India to invest in both physical infrastructure and human capital to boost competitiveness [51de7968].
Federal Reserve Bank of Chicago President Austan Goolsbee says policymakers should cut interest rates if US inflation continues to fall back to the 2% target [9f1dc2e9]. Goolsbee made these comments in Sintra, Portugal, stating that holding rates steady while inflation comes down would be tightening, and that policymakers should make a decision to cut rates [9f1dc2e9]. The Fed's preferred gauge of underlying inflation increased 0.1% in May, the slowest pace in six months [9f1dc2e9]. Goolsbee, who will vote on the Fed's July policy decision, believes that inflation is returning to target and that progress on the price front should be balanced with warning signs of a weakening economy [9f1dc2e9]. Fed Chairman Jerome Powell also spoke at the event, stating that the Fed has made progress on inflation but wants to see more evidence before lowering borrowing costs [9f1dc2e9].
This prediction has had an immediate impact on the price of Bitcoin, which has fallen by 0.66% in the past 24 hours to $69,674.83 [e6aaf648]. Solomon's comments have fueled a selloff in Bitcoin, as investors react to the prospect of no further rate cuts by the Federal Reserve in 2024 [e6aaf648]. However, some analysts believe that the retracement in the price of Bitcoin may be considered a knee-jerk reaction, as the crypto industry stands to gain from numerous growth catalysts [e6aaf648]. Despite the price drop, Bitcoin and altcoins are poised for imminent recovery in the short term due to bullish fundamentals such as reduced supply following the past halving [e6aaf648]. Solomon's prediction has broader implications for the risky asset ecosystem, as traditional assets might continue to compete with Bitcoin in terms of yield [e6aaf648]. The projections from Solomon have a bearing on the cryptocurrency market, as investors assess the potential impact on the overall market dynamics [e6aaf648].
Traders have reduced bets on more than one rate cut this year after the release of minutes from the Federal Reserve's April 30-May 1 policy meeting, which indicated that rate-setters thought inflation could take longer to ease than previously thought [7b054ec4]. Solomon's perspective was informed by recent developments, including the minutes of the Federal Reserve's April 30-May 1 policy meeting, which hinted at a cautious approach to rate cuts [86c3b068] [f40f154f]. He emphasized the cumulative nature of inflation and highlighted disparities in growth and the impact of inflation across different segments of society [86c3b068] [f40f154f]. Solomon also addressed broader challenges to global growth and advocated for investments in infrastructure and the integration of AI technologies [86c3b068] [f40f154f]. His remarks provided valuable perspectives for investors, policymakers, and other stakeholders navigating uncertain economic terrain [86c3b068] [f40f154f]. Federal Reserve Bank of Chicago President Austan Goolsbee supports rate cuts if US inflation falls back to the 2% target [9f1dc2e9]. Goolsbee believes that policymakers should make a decision to cut rates and balance progress on the price front with warning signs of a weakening economy [9f1dc2e9]. Fed Chairman Jerome Powell also spoke at the event, stating that the Fed wants to see more evidence before lowering borrowing costs [9f1dc2e9].