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Goldman Sachs expects two interest rate cuts despite the Federal Reserve’s statements.

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At his press conference on Wednesday, Federal Reserve Chairman Jerome Powell said that many participants considered the rate cut decision to be imminent following the SPI index report. The implied market probability of a rate cut by September initially rose from 59% to a peak of 85%, but then fell back to 65% after the Federal Open Market Committee (FOMC) meeting.

Economists at Goldman Sachs stated in a memo: “We still expect a first rate cut in September and a second cut in December.” They noted that their inflation expectations for 2024 are now slightly below the FOMC’s projections, which Chairman Powell described as “somewhat conservative.”

The economists pointed out that despite the baseline scenario of a single rate cut at the FOMC meeting, there were subtle indications of “sympathy for easing” in response to progress on inflation.

They emphasized that the FOMC statement was revised to indicate “modest” progress toward the 2% target. In his opening remarks, Chairman Powell confirmed that inflation had decreased from its peak of 7% to 2.7%. Powell made several other important statements during his speech, noting that labor market data would need to be worse than expected to justify rate cuts. Furthermore, the Fed Chairman downplayed the significance of neutral rate estimates.

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