Divergence in Fed forecasts

While Morgan Stanley economists predict that the Fed will implement significant interest rate cuts over the next two years due to cooling inflation, Goldman Sachs analysts expect fewer cuts and a later start.

In their 2024 outlook released on Sunday, Morgan Stanley researchers led by chief U.S. economist Ellen Zentner stated that the central bank would begin interest rate cuts in June 2024, followed by September, and then at every meeting starting from the fourth quarter, with 25 basis point increments. They stated that this would lower the policy rate to 2.375 percent by the end of 2025.

Meanwhile, Goldman Sachs expects the first 25 basis point cut in the fourth quarter of 2024, followed by one cut every quarter until mid-2026. Goldman Sachs analysts believe that with a total of 175 basis points in cuts, the interest rate will settle at a target of 3.5 percent to 3.75 percent.

Goldman Sachs' forecasts are closer to those of the central bank. According to the median projections of policymakers, the Fed's September forecasts show that two quarter-point interest rate cuts are planned for next year, with the policy rate ending at 3.9 percent in 2025. Fed governors and regional bank presidents will update their forecasts at next month's meeting.

Morgan Stanley anticipates a weaker economy that, while not in recession, warrants a larger expansion. They expect unemployment to peak at 4.3 percent in 2025, compared to the Fed's 4.1 percent forecast. According to Morgan Stanley, growth and inflation will also be slower than what officials project.

News Source: 12punto