Fed's cautious approach to policy changes will prevent interest rate hikes

The investment bank's outlook suggests that the Fed's cautious approach to policy changes will likely prevent any interest rate hikes or cuts in the near term. Meanwhile, the European Central Bank (ECB) is also expected to remain steady, with its final interest rate hike projected to stabilize at 4%.

Goldman Sachs anticipates that the Fed will begin cutting interest rates in the second half of next year, starting late in the fourth quarter. The cuts are expected to occur at a measured pace with standard-sized quarterly reductions. This aligns with a broader strategy of gradual monetary tightening as the economy adjusts to the post-pandemic era.

In Europe, the ECB is preparing to scale back its Pandemic Emergency Purchase Programme (PEPP). The bank plans to cap reinvestments at 10 billion Euros per month starting from the second quarter of 2024. Furthermore, it plans to begin interest rate cuts from the middle of the third quarter, earlier than the Fed.

The ECB aims to cease all PEPP reinvestments by the third quarter of 2025 and targets a policy rate around half of its current level by the end of the fourth quarter of that same year. Both central banks are acting cautiously, reflecting a global trend of managing monetary policy carefully during a period of economic uncertainty.

News Source: 12punto