Goldman Sachs predicts: The Federal Reserve will cut interest rates 6 times in a row next

Goldman Sachs said on Wednesday that it is expected that the Federal Reserve will cut interest rates by 25 basis points continuously from November 2024 to June 2025, eventually lowering the interest rate range to 3.25%-3.5%.

Last month, the Federal Reserve cut the federal funds rate by 50 basis points, citing their increased confidence that the inflation rate will continue to fall to the annual target of 2%. The current federal funds rate in the United States is 4.75%-5.00%, which guides interbank lending rates and affects consumer loan rates.

If Goldman Sachs' forecast comes true, it means that the Federal Reserve will cut interest rates by 25 basis points at its meetings in November, December this year, January, March, May, and June next year.

James Knightley, Chief International Economist at ING, also suggested that the Federal Reserve may cut interest rates by 50 basis points for the remainder of this year.

Knightley explained that the Federal Reserve's current approach focuses on risk management. Unlike most central banks with a single target of lowering the inflation rate to 2%, the Federal Reserve has two main goals: price stability and full employment. If the Federal Reserve is confident in achieving the inflation target, it may shift its focus to supporting employment.

The Federal Reserve aims for a "soft landing," meaning an economic slowdown sufficient to reduce inflation but avoid a recession. Knightley stated that the Federal Reserve may soon shift from restrictive policies that slow economic activity to a more neutral stance. This would provide more room for economic growth while still controlling inflation.

Knightley suggested that a 25 basis point rate cut by the Federal Reserve in November, followed by another cut in December, would be very appropriate. He also predicted that the Federal Reserve may lower interest rates to around 3%-3.5% by the summer of 2025.

Since the significant rate cut by the Federal Reserve last month, the bond market has been experiencing intense fluctuations. The yield on the benchmark 10-year U.S. Treasury bond surged after strong inflation data was released, but then fell back after data showed a slowdown in the labor market. These fluctuations indicate that investors are becoming increasingly uncertain about their Federal Reserve rate forecasts.

The "FedWatch" tool from the Chicago Mercantile Exchange (CME) shows that the market currently expects a 94.1% probability of a 25 basis point rate cut at the next meeting by the Federal Reserve, with only a 5.9% chance of rates remaining unchanged. There is no longer an expectation of a 50 basis point cut, as the market has seen a series of recent data releases and corporate profit forecasts indicating that the U.S. economy will continue to expand into early next year.

The Atlanta Fed's GDPNow forecasting tool has set the third-quarter economic growth rate at 3.2%, significantly higher than the long-term trend of 2% to 2.5%.

Goldman Sachs also stated that it expects the European Central Bank to cut interest rates by 25 basis points at Thursday's monetary policy meeting, and anticipates that the ECB will continue with 25 basis point rate cuts until the policy rate reaches 2% by June 2025