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Jan Hatzius and David Mericle, economists at Goldman Sachs, have predicted that the US Federal Reserve will begin lowering interest rates in the second quarter of 2024.
Many experts have previously suggested that such a pivot could boost investor interest in risk-on assets, including stocks, commodities, and cryptocurrencies.
Still Uncertain About the Pace
According to Hatzius and Mericle, the US central bank will start a gradual reduction of interest rates from the end of June 2024. They remain uncertain about the pace of decline, highlighting 25 basis points of cuts per quarter as the most likely scenario.
“The cuts in our forecast are driven by this desire to normalize the funds rate from a restrictive level once inflation is closer to target,” they stated.
The economists also believe the Fed will not increase rates during its next FOMC meeting in September and concluded that “the core inflation trend has slowed enough to make a final hike unnecessary” in November.
“Normalization is not a particularly urgent motivation for cutting, and for that reason, we also see a significant risk that the FOMC will instead hold steady.”
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Goldman Sachs’ financial experts believe the Fed will continue reducing interest rates until reaching a 3-3.25% benchmark.
The Federal Reserve has pursued an aggressive strategy since the start of the COVID-19 pandemic, aiming to mitigate the disaster’s short-term devastating economic effects by printing substantial amounts of money and raising interest rates.
It lifted the benchmark rate 11 times between March 2020 and July 2023, dampening interest in riskier assets such as cryptocurrencies. Some believe that one of the contributing factors for the digital asset market to flourish again will be the end of that policy. The CEO of Galaxy Digital, Mike Novogratz, and the founder of SkyBridge Capital, Anthony Scaramucci, are among those who hold this view.
What About an Earlier Pivot?
Tom Lee, Managing Partner and Head of Research at Fundstrat Global Advisors, also believes the Fed will start cutting interest rates in 2024. Unlike Goldman Sachs’ economists, however, he forecasted that this could happen in Q1:
“Most people believe it’s the second half because the Fed doesn’t want to tighten rates, but if inflation’s falling, they have to cut rates. Otherwise, it’s actually restricting the economy more.”
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