Goldman Sachs Revises Federal Reserve Rate Cut Forecast for 2024

Goldman Sachs' revised prediction for Federal Reserve interest rate cuts

Goldman Sachs economists have recently updated their forecast for the Federal Reserve's interest rate cuts, marking a significant shift in the financial landscape. Initially expected to commence in May, the timeline for these cuts has been pushed to June. This adjustment stems from a combination of recent central bank officials' pronouncements and insights gleaned from the January meeting minutes.

In a notable revision of their economic forecast, Goldman Sachs has adjusted its expectation for the Federal Reserve's interest rate policy. The investment bank now anticipates four rate cuts throughout 2024, a decrease from their previous prediction of five. These cuts are expected in June, July, September, and December. Despite the timeline adjustment, the projected terminal rate remains unchanged at 3.25%-3.5%, as highlighted in a report by economists including Jan Hatzius, with Bloomberg being the first to report this development.

Revised reason: Recent statements from central bank officials and insights from January meeting minutes

The revision in Goldman Sachs' forecast aligns with recent utterances from central bank officials and the information disclosed in the minutes from the Fed's January meeting. The adjustment reflects a broader economic assessment, including robust economic data that has somewhat alleviated concerns over the adverse effects of sustained high interest rates. This data suggests that the most significant risks associated with high interest rates may be behind us, reducing the urgency for immediate rate cuts.

Goldman Sachs' upward revision of the S&P 500 target for 2024

Amid these adjustments, Goldman Sachs has also revised its S&P 500 target upwards for the second time in 2024, indicating a growing confidence in Wall Street's earnings potential. This optimism is buoyed by increased profit estimates, reflecting a bullish outlook for the market.

Fed officials have reiterated their commitment to reducing rates in 2024, albeit signaling that cuts would not occur in the immediate future. This stance suggests a cautious approach, seeking more concrete evidence that inflation is on track to meet the 2% target before initiating rate cuts.

The financial markets have begun to react to Goldman Sachs' analysis and the broader economic indicators. The S&P 500 index has seen a 4.7% increase over the past month, with a notable 1.6% rise on the back of NVIDIA's strong earnings report. Cryptocurrency, particularly Bitcoin, has experienced a 28% surge in the past month, although it witnessed a 1.8% decrease over the past week as investors pivoted towards equities.

Furthermore, Bitcoin is positioned to unlock a substantial $500 billion opportunity in the rapidly growing decentralized finance (DeFi) sector. At the same time, Bitcoin holdings on Coinbase have dropped to their lowest level since 2017, indicating a trend of large investors moving towards self-custody.