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The Federal Reserve is set to convene on October 31-November 1. But Goldman Sachs strategists believe that interest rates are unlikely to see an increase during this period. In a report issued by the investment bank, they pointed out several key factors that support their prediction.
Labor Market Rebalancing and Inflation Improvements
Goldman Sachs predicts that further rebalancing in the labor market. Along with positive developments in inflation, will be instrumental in persuading more participants in the FOMC to forgo any rate hike this year. They argue that these factors, combined with the potential economic challenges in the fourth quarter, will contribute to the Fed’s decision.
The Federal Reserve “Dot Plot” and Rate Projections
The investment bank’s strategists acknowledge that the Fed’s “dot plot,” reflecting policymakers’ interest rate projections. Thus, may still show a narrow majority favoring one more rate hike to maintain flexibility. This insight reveals the ongoing debate within the Fed regarding the future course of monetary policy.
Market Sentiment and Investor Views
As market participants assess the Fed’s monetary policy direction, prominent investors, including J.P. Morgan Asset Management and Janus Henderson Investors, suggest that the central bank has concluded its aggressive tightening cycle. This perspective aligns with the broader consensus.
Current Market Odds
Currently, the market’s expectations are clear. Futures linked to the Fed’s benchmark overnight interest rate suggest a 98% likelihood that rates will remain unchanged after the September 19-20 meeting. Looking ahead to the October 31-November 1 gathering, the odds of the policy rate remaining steady are around 72%, according to CME Group’s FedWatch Tool.
Future Outlook
Goldman Sachs’ strategists also anticipate the possibility of “gradual” rate cuts in the coming year if inflation continues to cool. Additionally, they expect the Fed to revise its 2023 U.S. growth estimate from 1% to 2.1%, highlighting the economy’s resilience. The strategists also predict a reduction in the 2023 unemployment rate estimate by two-tenths of a percentage point to 3.9% and a four-tenths of a percentage point decrease in the estimate for core inflation to 3.5%.
As the Federal Reserve meeting approaches, market watchers will closely monitor these developments and the central bank’s actions in response to evolving economic conditions.
Disclaimer: This article serves solely for informational purposes and should not be construe as financial advice. Thus, we strongly advise readers to conduct thorough research and consult with financial professionals before making any investment decisions.
