The debate over a soft landing or a hard landing in America
Morgan Stanley and Goldman Sachs have presented different scenarios in their Fed interest rate cut forecasts. Economist Prof. Dr. Hayri Kozanoğlu evaluated the reasons for the divergence in the Federal Reserve (FED) forecasts of Goldman Sachs and Morgan Stanley for 12punto.com.tr.
Gizem Yaralı
Gizem Yaralı-12punto
Economist Prof. Dr. Hayri Kozanoğlu explained the evaluations regarding the eagerly awaited interest rate decision:
Goldman Sachs and Morgan Stanley are two of America's most prominent investment banks, and their forward-looking projections are monitored and considered important all over the world.
As is known, the American Central Bank, the FED, is currently keeping interest rates in the 5.25% - 5.50% range, and the general consensus is that inflation is on the decline. It was most recently announced as 3.7%.
It is expected that they have stopped interest rate hikes and will move toward interest rate cuts starting in 2024. Specifically, the FED's medium-to-long-term inflation target in America is 2%. However, it is understood from the statements of FED Chair Powell that they want to maintain a real interest rate of one and a half to two percentage points for a certain period to control excessive demand in the economy and the inflation rising in connection with it. In that respect, they are expected to adjust interest rates according to the decline in inflation.
At this point, both banks predict that interest rates will begin to be cut in 2024, but Morgan Stanley believes that there will be faster interest rate cuts and that interest rates will fall to 2.375% by the end of 2025.
Goldman Sachs's projections, on the other hand, foresee a slower interest rate cut, between 3.5% and 3.75%. This is actually related to how the American economy will perform; as far as it is understood, Goldman Sachs bank sees that growth will slow down significantly, unemployment will increase, and after a certain point, the American Central Bank will cut interest rates more sharply to keep the economy alive.
Goldman Sachs adopts the scenario of a soft landing, where the economy cools down slowly or the economy does not slow down too much while inflation falls, and accordingly, it thinks that slower interest rate cuts will be made, settling for a total of 175 basis points, a 1.75% cut, by the end of 2025.