Goldman Sachs Predicts No Rate Hike at Upcoming Fed Meeting, Expects Growth Projections to Rise

2023.09.18

Key Takeaways

Goldman Sachs suggests that the Federal Reserve is unlikely to raise interest rates during its October 31-November 1 meeting, citing factors such as improving labor market conditions and inflation trends.

The investment bank anticipates that the Fed’s “dot plot” may still show a slim majority projecting one more rate hike, primarily to maintain policy flexibility.

Fed’s Rate Hike Prospects

Goldman Sachs’ strategists have expressed their view that the Federal Reserve is unlikely to pursue an interest rate hike during the meeting scheduled for October 31-November 1. They base this projection on several factors, including ongoing improvements in the labor market, favorable developments in inflation, and the potential for a slowdown in economic growth in the fourth quarter. These considerations, according to Goldman Sachs, could lead more Federal Open Market Committee (FOMC) members to favor postponing a rate hike.

Market Expectations and Policy Consensus

In line with this perspective, futures linked to the Fed’s benchmark overnight interest rate currently indicate a 98% probability that the central bank will maintain its rates at the conclusion of the September 19-20 meeting. Moreover, the likelihood of the policy rate, which currently ranges between 5.25% and 5.50%, remaining unchanged during the October 31-November 1 gathering stands at approximately 72%. This aligns with the consensus view that the Fed may opt for a more patient approach to rate adjustments.

Potential for Future Rate Cuts and Economic Outlook

Looking ahead to the following year, Goldman Sachs’ strategists suggest the possibility of “gradual” rate cuts if inflation continues to moderate. Additionally, they anticipate that the Federal Reserve may raise its growth estimates for 2023 to 2.1% from the previous 1%, reflecting the resilience of the U.S. economy. Furthermore, Goldman Sachs expects the Fed to adjust its projections for the 2023 unemployment rate downward by two-tenths of a percentage point to 3.9% and reduce the estimate for core inflation by four-tenths of a percentage point to 3.5%. These adjustments highlight the dynamic nature of the central bank’s economic outlook.

As the Federal Reserve’s monetary policy decisions remain under scrutiny, Goldman Sachs’ analysis provides insights into the potential trajectory of interest rates and economic growth projections. The upcoming FOMC meeting and its associated policy updates will be closely monitored by market participants and economists, as they seek clarity on the central bank’s stance amid evolving economic conditions.