Goldman Sachs: Expects the first interest rate cut by the Federal Reserve to be postponed until May.

Federal Reserve Chairman Powell stated that it is unlikely to cut interest rates in March, and Goldman Sachs, which was "slapped in the face," overnight postponed its expectations for the first round of interest rate cuts.

In the latest report, Goldman Sachs analysts, including Jan Hatzius, have pushed back the expected time for the first interest rate cut by the Federal Reserve from March to May.

However, consistent with previous predictions, Goldman Sachs still predicts that the FOMC will cut interest rates five times by 2024.

Goldman Sachs expects the Federal Reserve's preferred inflation indicator, core PCE, to decrease by at least 20% from FOMC's median forecast of 2.4% this year, and further decrease in 2025.

As for the interest rate path in 2025, Goldman Sachs predicts three rate cuts.

Overnight, as expected, the Federal Reserve remained unchanged, and the monetary policy statement deleted the wording implying future rate hikes, stating that it is not appropriate to cut interest rates until there is more confidence in achieving the inflation target. Federal Reserve Chairman Powell stated in a post-meeting press conference that the Fed maintains an open attitude towards rate cuts but is not in a hurry and does not believe that a rate cut in March is possible.

In response, CICC stated that a rate cut in March is too early, while a rate cut in May is not too late. The core message conveyed by the Federal Reserve this time is that they will cut interest rates but do not want the market to anticipate it too early.

Looking at the significantly revised meeting statement of the Federal Reserve and Powell's remarks at the post-meeting press conference, it can be seen that the Federal Reserve is preparing and laying the groundwork for rate cuts but does not want the market to get ahead too much, thus continuously dampening expectations for a rate cut in March.

We have always emphasized that the expectation of a rate cut in March is somewhat forced, after all, the current fundamentals of the United States do not support a too fast and early rate cut. However, an early rate cut is still possible. As for whether it will be in March or May, there may not be much difference from an asset perspective. As long as the direction is clear, the trading direction will also be clear, with some "reversals" in between.

Chart 1: The current pace can refer to the experience of 2019

CICC also pointed out that the possibility of an early rate cut in March still exists:

1. After all, Powell has already stated that "rate cuts are on the table" and made a turning point in his stance;

2. The downward trend of inflation in the first half of the year is relatively certain, and our calculations show that overall and core CPI can both be reduced to below 3% in the second half of the year. The Federal Reserve has also set a threshold for rate cuts, which is greater confidence that inflation is moving sustainably toward 2%. There are still two CPI data points to be confirmed before the March FOMC meeting, which leaves room for policy adjustments and does not rule out the possibility of rate cuts.

1. Non-fundamental factors such as hedging liquidity tightening and avoiding election interference will also have a certain impact on the Fed's decision to cut rates ahead of time.

1. From a fiscal perspective, the first quarter is the peak of Treasury bond maturities. An early rate cut "helps" save the cost of replacing maturing Treasury bonds, easing the interest payment pressure on the U.S. government.

However, it should be noted that an early rate cut has reflexive effects, and CICC advises against directly extrapolating future rate cut paths.