Economists at Goldman Sachs have delayed their prediction for the first Federal Reserve interest rate cut from July to September.
They noted that recent speeches by Fed officials indicate that a July cut would require not only improved inflation figures but also significant signs of a slowdown in economic activity or the labor market. Data released on Thursday showed lower weekly jobless claims and stronger purchasing managers indexes, suggesting that a July cut is unlikely.
Following the data release, U.S. stocks dropped on Thursday, with the Dow Jones Industrial Average experiencing its largest decline in over a year, while bond yields rose.
The timing of the first cut remains uncertain, the economists said.
“First, we continue to view rate cuts as optional, reducing the urgency. Second, while inflation is expected to improve by September, it may still be at a year-on-year rate that makes cutting less clear-cut,” they explained.
“Third, although Fed leadership seems to share our more relaxed view on the inflation outlook and may be ready to cut soon, some FOMC members remain more worried about inflation and hesitant to cut.”
The revised Goldman forecast aligns with market expectations, which the CME FedWatch tool indicates show a 54% chance of a cut in September, compared to a 12% chance in July.