The Federal Reserve is anticipated to implement its next interest rate reduction in March 2025, followed by two additional cuts in June and September, with the objective of achieving a terminal rate range of 3.5-3.75%, according to Goldman Sachs.
Goldman's analysis is released at a time when the U.S. economy is anticipated to attain above-average development, with a 2.4% year-over-year increase in real GDP forecast for 2025. This optimism is predicated on the easing of financial conditions and the robust growth of real income. Additionally, it is anticipated that core personal consumption expenditures (PCE) inflation will slow down to 2.4% by the end of 2025, which will be facilitated by the ease of wage pressures and the lowering of shelter inflation.
This forecast is consistent with the expectation that the Federal Reserve's balance sheet outflow will slow down beginning in January 2025, culminating in a complete cessation in the second quarter. Goldman Sachs maintains that these rate adjustments are part of a more comprehensive strategy to manage economic development and ensure that inflation moves toward the Federal Reserve's target rate.
The economic trajectory and the Federal Reserve's response to it are reflected in Goldman's prediction of these rate cuts, which are intended to maintain economic stability while adapting to the changing financial landscape.