Goldman Sachs has revised its timeline for the Federal Reserve’s monetary easing, now anticipating that interest rate cuts of 25 basis points will occur in September and December. This shift in the forecast stems from heightened inflationary risks associated with ongoing instability in the Middle East. Previously, the financial firm had predicted that the reduction cycle would commence in June, with a subsequent decrease following in September, Reuters reported.
Global markets are currently experiencing significant strain as the conflict between the United States and Iran raises the possibility of an oil supply disruption, which could further drive up inflation and create an unpredictable economic climate. Goldman Sachs noted on Wednesday that by September, a combination of a softening labor market and improvements in core inflation should provide the necessary justification for a rate reduction. The firm also mentioned that earlier cuts remain possible if the labour market weakens sooner and more substantially than expected.
Read more: U.S. stock futures slip following 0.3 percent rise in February Consumer Price Index
Cooling job market
Concerns regarding a cooling job market persist following a lackluster employment report in February. Strategists at the brokerage suggest that a slowdown in economic growth, coupled with intensifying geopolitical tensions, may accelerate the timeline for policy easing. Furthermore, the firm indicated that if labor market conditions deteriorate sufficiently to require immediate action, the Federal Reserve is unlikely to be deterred from cutting rates by fears of high energy costs impacting inflation expectations.
At present, market participants are factoring in approximately a 41 percent probability that the American central bank will implement a quarter-point cut in September. Despite these long-term projections, there is a broad consensus that the Federal Reserve will maintain current interest rate levels during its scheduled policy discussions on March 17-18.
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