When will the Fed start cutting rates? Wall Street titans disagree
Morgan Stanley economists forecast the Federal Reserve to make deep interest-rate cuts over the next two years as inflation cools, while Goldman Sachs Group Inc. analysts expect fewer reductions and a later start.
The central bank will start cutting rates in June 2024, then again in September and every meeting from the fourth quarter onward, each in 25-basis point increments, Morgan Stanley researchers led by chief US economist Ellen Zentner said in their 2024 outlook on Sunday. That’ll take the policy rate down to 2.375% by the end of 2025, they said.
Goldman Sachs, meanwhile, sees the first 25-basis-point reduction in the fourth quarter of 2024, followed by one cut per quarter through mid-2026 — a total of 175 basis points, with rates settling at a 3.5%-3.75% target range. That’s according to a 2024 outlook from economist David Mericle, also published Sunday.
The Goldman Sachs forecasts are closer to the central bank’s. Fed projections from September show two quarter-point cuts penciled in for next year and the policy rate ending 2025 at 3.9%, according to the median estimates of policymakers. Fed governors and regional bank presidents will update their forecasts at next month’s meeting.
Morgan Stanley’s team sees a weaker economy that warrants a greater magnitude of easing, though no recession. They expect unemployment to peak at 4.3% in 2025, compared with the Fed’s 4.1% estimate. Growth and inflation will be slower than officials anticipate, too.
Here are some of Morgan Stanley’s and Goldman Sachs’ 2025 forecasts, compared with the median of Fed officials’ projections in September:
“High rates for longer cause a persistent drag, more than offsetting the fiscal impulse and bringing growth sustainably below potential
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