Synopsis:

Goldman Sachs outlines its projections for the monetary policy paths of both the Federal Reserve and the European Central Bank (ECB) over the coming years. The firm expects the Fed to initiate a series of rate cuts starting in June 2024, eventually reaching a terminal rate range of 3.25-3.5%. In contrast, the ECB is forecasted to begin cutting rates in June 2024, with a series of reductions leading to a policy rate of 2.25%.

Key Points:

• Federal Reserve Outlook:

  • Holding Pattern: Anticipated to maintain the current fed funds rate range (5.25-5.5%) until June.
  • Rate Cuts: Projected to cut rates by 25 basis points in June, September, and December 2024, followed by four additional cuts in 2025, and one final cut in 2026.
  • Balance Sheet Adjustment: Expected reduction of the Treasury runoff cap from $60 billion to $30 billion monthly post-May FOMC meeting.

• European Central Bank Forecast:

  • Steady Stance: Predicted to hold the policy rate at 4.00% until a June cut.
  • Rate Reductions: Foreseen series of 25 basis point cuts per meeting, reducing the policy rate to 2.25% with a total of five cuts in 2024 and two more in 2025.

Conclusion:

Goldman Sachs provides a detailed forecast for the future actions of the Fed and ECB, suggesting a cautious approach towards easing monetary policy. While both central banks are projected to start cutting rates in June 2024, the pace and extent of these cuts differ, reflecting divergent economic conditions and policy considerations. This analysis offers valuable insights for market participants navigating the evolving interest rate environment.