Jan Hatzius and David Mericle – economists at the giant bank Goldman Sachs – predict that the US Federal Reserve will start lowering interest rates from the second quarter of 2024.
Many experts have previously suggested that such a pivot would boost investor interest in riskier assets, including stocks, commodities, and cryptocurrencies.
Not Sure About Pace Yet
According to Hatzius and Mericle, the US central bank – the Federal Reserve – will begin a gradual reduction in interest rates from the end of June next year. They are still uncertain about the temperature drop, highlighting a 25 basis point cut per quarter as the most likely scenario.
“The cuts in our forecast are driven by this desire to normalize the funds rate from a tight level once inflation is closer to the target,” they said.
Economists also believe that the Fed will not raise rates at the next FOMC meeting in September and will conclude that “the core inflation trend is slow enough to not require a final increase” in November.
“Normalization is not a particularly urgent motivation to cut, and for that reason, we also see a significant risk that the FOMC will instead hold steady.”
Financial experts at Goldman Sachs believe that the Fed will continue to lower interest rates until reaching the 3-3.25% benchmark.
The Federal Reserve has launched an aggressive strategy since the start of the COVID-19 pandemic, aiming to reduce the short-term negative impact on the economy by printing large amounts of money and raising interest rates.
It raised the benchmark 11 times between March 2020 and July 2023, hindering interest in riskier assets, such as cryptocurrencies. Some believe that one of the main reasons for the development of the digital asset market is the end of that policy. The CEO of Galaxy Digital – Mike Novogratz – and the founder of SkyBridge Capital – Anthony Scaramucci – are some examples.
What About the Previous Pivot?
Tom Lee – Managing Partner and Head of Research at Fundstrat Global Advisors – also thinks that the Fed will start cutting interest rates in 2024. Unlike Goldman Sachs economists, however, he predicts that this will happen from Q1:
“Most people believe it’s the second part because the Fed doesn’t want to tighten rates, but when inflation falls, they have to cut rates. Otherwise, it tightens the economy even more.”
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