Fed to cut rates in Dec, forecasts GSR; US job market weakness genuine

Seeing ‘genuine’ signs of weakness in the US job market, it does not expect the picture to change enough by the December meeting for the Federal Open Market Committee (FOMC) to stop cutting.

Goldman Sachs Research recently forecast that the US Federal Reserve will cut interest rates again in December.
Seeing ‘genuine’ signs of weakness in the US job market, it does not expect the picture to change enough by the December meeting for the Federal Open Market Committee to stop cutting.
It also expects two 25-basis-point cuts in March and June next year to a terminal rate of 3-3.25 per cent.

Though Fed chair Jerome Powell was more hawkish than expected during the central bank’s recent press conference, Goldman Sachs Research still expects policymakers to lower their target rate again this year.

It also expects two 25-basis-point cuts in March and June next year to a terminal rate of 3-3.25 per cent, it said in an insights article on its website.

The FOMC cut its target rate in October for the second time this year, lowering the fed funds rate by 25 basis points to 3.75-4 per cent. The Fed also said it would stop running off its $6.6-trillion balance sheet at the start of December. The principal payments of mortgage backed securities will only be reinvested into Treasury bills.

While most official economic data releases have been suspended by the government shutdown, Powell noted that the available official and alternative indicators suggest that inflation (net of tariff effects) is now close to the 2-per cent target and that the labour market has continued to cool gradually.

The FOMC’s summary of economic projections for September implied that most participants saw a December cut as the baseline, according to Goldman Sachs Research. The Fed’s past packages of risk management cuts (proactive rate cuts to guard against potential risks to the economy) also suggest that a third and final cut is the default.

Labor market data are “unlikely to send a convincingly reassuring message” by the time of the FOMC meeting in December, David Mericle, chief US economist, wrote in the team’s report.

Deferred resignations of government employees instigated by the Department of Government Efficiency are likely to generate a negative payrolls report in October and “weigh a bit on November,” Mericle added.

Fibre2Fashion News Desk (DS)