Goldman Sachs CEO: Signs of weakness in the job market, the Fed still may cut rates by 50 basis points
Goldman Sachs CEO Solomon stated that due to a weak job market, the Federal Reserve may cut interest rates by 50 basis points, with a probability of around 30%. He expects the Fed to cut rates two to three times before the end of the year, with the most optimistic forecast being a 25 basis point cut. Recent data shows a slowdown in hiring pace in the United States, a decrease in the growth rate of non-farm employment, and changing expectations in the market for a Fed rate cut
According to the financial news app Zhitong Finance, Goldman Sachs CEO David Solomon stated that due to signs of weakness in the job market, the Federal Reserve may still choose to cut interest rates by a larger-than-expected margin. Solomon said, "Based on further weakness in the labor market, there is reason for the Fed to cut rates by 50 basis points." "I think the probability of this is around 30%."
Solomon mentioned that his most optimistic guess is that the Fed may cut rates by 25 basis points, but could cut rates two to three times before the end of the year. It is worth noting that back in May, Solomon also predicted that the Fed may not cut rates in 2024, although he stated that a soft landing is still the most likely outcome.
In recent weeks, the focus of Fed officials has shifted from controlling inflation to the job market. Since April, the pace of hiring in the United States has significantly slowed down, with the monthly average increase in non-farm employment dropping from 255,000 people in the previous five months to 135,000 people, and job vacancies have also decreased. Fed officials believe that the weakness in the job market is one of the reasons that will accelerate the pace of easing in the coming months.
Market pricing is currently leaning towards a 25 basis point rate cut by the Fed next week. Data released on Wednesday showed that the U.S. Consumer Price Index (CPI) rose by 2.5% year-on-year in August, lower than the previous value of 2.9% and the market expectation of 2.6%; on a month-on-month basis, it rose by 0.2%, in line with market expectations. However, the core CPI, which excludes food and energy costs, increased by 0.3% month-on-month, higher than the market expectation of 0.2% and the previous value of 0.2%.
After the data was released, the market reduced its expectations for the magnitude of the Fed's rate cut next week. The CME Group's "FedWatch" tool shows that the probability of a 25 basis point rate cut next week has increased from 71% to 85%, while the probability of a 50 basis point rate cut has decreased from 29% to 15%