Title: Federal Reserve Unlikely to Raise Interest Rates, Goldman Sachs Predicts Strong Economic Growth
Date: October 29, 2022
On Saturday, Goldman Sachs strategists released a report stating that the Federal Reserve is unlikely to raise interest rates at its upcoming meeting on October 31-November 1. In addition, the investment bank forecasted that the central bank would revise its economic growth projections upwards during the meeting.
The strategists wrote, “On November, we think that further labor market rebalancing, better news on inflation, and the likely upcoming Q4 growth pothole will convince more participants that the FOMC (Federal Open Market Committee) can forgo a final hike this year, as we think it ultimately will.”
While Goldman Sachs expects the Federal Reserve’s “dot plot” to reveal a narrow 10-9 majority in favor of one more rate hike, they believe that most participants will be persuaded to delay further rate increases due to positive developments in labor market data, inflation, and projected Q4 growth.
This sentiment is shared by several big investors, including J.P. Morgan Asset Management and Janus Henderson Investors, who believe that the Federal Reserve has completed its aggressive monetary policy tightening cycle.
According to the FedWatch Tool from CME Group, the futures tied to the Fed’s benchmark overnight interest rate indicate a 98% chance of rates remaining unchanged at the end of the Sept. 19-20 meeting. Further, the odds of rates staying the same at the October 31-November 1 gathering currently stand at approximately 72%.
Goldman Sachs’ strategists also pointed out that if inflation continues to cool, next year could see “gradual” rate cuts by the Federal Reserve. Additionally, they anticipate the central bank to increase its estimates for U.S. economic growth in 2023 from 1% to 2.1%, highlighting the economy’s resilience in the face of challenges.
In their report, the strategists speculate that the Federal Reserve may also lower the estimate for the 2023 unemployment rate by two-tenths of a percentage point to 3.9% and reduce the estimate for core inflation by four-tenths of a percentage point to 3.5%.
As policymakers gather next week, market participants eagerly await the updated economic projections and the Federal Reserve’s signals on future monetary policy decisions.
Reporting by Ira Iosebashvili; Editing by Paul Simao