Goldman Sachs Delays Fed Rate Cut to December, Boosts GDP Growth Forecast to 1%

Goldman Sachs has revised its expectations for the Federal Reserve's next rate cut, pushing it back to December from the previously anticipated July. This adjustment comes in response to recent developments and the significant easing of financial conditions observed last month. According to a Goldman Sachs analyst, the firm has increased its forecast for the U.S. fourth-quarter GDP growth rate by 0.5 percentage points to 1%. This revision reflects a more optimistic outlook on economic growth. Concurrently, the probability of an economic recession in the next 12 months has been reduced to 35%.

The analyst also noted that the core personal consumption expenditure (PCE) inflation path expectation has been lowered, with the peak now anticipated at 3.6% instead of the previously expected 3.8%. This adjustment suggests that inflationary pressures may be easing more than initially thought. The combination of these factors—higher GDP growth expectations, a lower recession probability, and a reduced inflation peak—has led Goldman Sachs to push back the timeline for the next Fed rate cut to the end of the year.

This shift in expectations underscores the dynamic nature of economic forecasting and the influence of recent financial conditions on market sentiment. The easing of financial conditions, coupled with improved economic indicators, has led to a more positive outlook for the U.S. economy. However, it is important to note that these forecasts are subject to change based on future economic developments and policy decisions. The revised timeline for the Fed rate cut reflects a cautious approach, taking into account the potential for further economic improvements before any policy adjustments are made.