Goldman Sachs: The Fed Has “Sufficient Reason” to Cut Rates in July

Goldman Sachs argues that the Fed will soon begin cutting rates. The market almost fully expects a rate cut in September, which remains Goldman’s base case, but they believe there is sufficient reason for a cut as early as the July meeting. Goldman presents three main reasons for this:

Firstly, if the reason for cutting rates is clear, why wait seven weeks to implement it?

Secondly, monthly inflation fluctuations can be significant. If US inflation temporarily accelerates again, it could be difficult to justify a September rate cut. Cutting rates in July could avoid this risk.

Thirdly, although the Fed has never acknowledged it, there is a motive to avoid initiating rate cuts in the final two months of a presidential campaign.

Goldman’s chief economist, Hatzius, concludes that while this doesn’t mean the Fed can’t cut rates in September, it does suggest that a cut in July would be preferable.

On the same day, Fed Chairman Powell, in a public speech, declined to disclose the Fed’s next move, which was expected. However, he did mention that the recent three inflation reports have strengthened their confidence.