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Goldman Sachs Pushes Back Fed Rate Cut Timeline After Powell’s ‘Strong Signal’

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Goldman Sachs has moved its prediction for the first Federal Reserve interest rate cut from March to May. This adjustment comes in the wake of the January Federal Open Market Committee (FOMC) meeting, which was marked by Fed Chair Jerome Powell‘s apparent unwavering stance on monetary policy.

David Mericle, an economist at Goldman Sachs, highlighted that Powell gave a strong signal that a March funds rate cut “is probably not the most likely case.”

Mericle explained that the consensus among FOMC members, despite their varying perspectives, seems now to lean towards initiating rate cuts a bit later than previously anticipated, likely in May rather than March.

Powell’s Hawkish Hint

This realignment of expectations follows Powell’s notably hawkish press conference, where he underscored the importance of gaining further assurance on the trajectory towards the 2% inflation target before considering rate reductions.

“Based on the meeting today, I would tell you that I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that,” the Chair stated.

Powell’s remarks at the press conference were clear: a single achievement of the 2% inflation target would not suffice. Instead, the Fed seeks sustained stability at this level before enacting any rate cuts. This cautious approach signals a more ‘hawkish’ outlook than many anticipated, prompting a reassessment of the timing for easing monetary policy.

Following Powell’s remarks, Wall Street extended losses for the session and the S&P 500, as tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY), marked its worst trading day since September 2023. The tech-heavy Nasdaq 100, monitored through the Invesco QQQ Trust (NASDAQ:QQQ), even underperformed, tumbling 1.94% on Wednesday, on its worst session since late October 2023.

Read also: Fed Will Wait To See ‘The Whites Of 2% Inflation’s Eyes’ Before Cutting Rates: Economists Weigh In On Powell’s Remarks

Adjusting Expectations, But Keeping A Dovish Stance

Goldman Sachs had positioned itself in the camp expecting a rate cut as early as March. Mericle had previously argued that the Fed would keep open the possibility of a March reduction, contingent on forthcoming inflation data and without firmly…

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