Title: Morgan Stanley and Goldman Sachs Diverge on Federal Reserve’s Interest Rate Cuts
Inflationary pressures are expected to prompt the Federal Reserve to implement deep interest-rate cuts over the next two years, according to economists at Morgan Stanley. In contrast, analysts at Goldman Sachs predict fewer rate reductions and a later start to the easing cycle. These conflicting predictions shed light on the differing views among financial institutions regarding the path of the US economy.
Morgan Stanley anticipates the central bank to begin cutting rates in June 2024, followed by subsequent cuts every quarter from the fourth quarter onward. The firm emphasizes a weaker economy that warrants significant easing but refrains from predicting a recession. Conversely, Goldman Sachs forecasts the first rate reduction in the fourth quarter of 2024, with one cut per quarter through mid-2026.
Notably, Goldman Sachs’ projections align more closely with the Federal Reserve’s September projections, indicating a more conservative approach to rate cuts compared to Morgan Stanley. Both firms, however, expect the US economy to avoid a downturn, although there may be a slowdown in hiring.
While Morgan Stanley foresees the Federal Reserve phasing out quantitative tightening starting in September, Goldman Sachs expects rates to remain relatively high due to a higher equilibrium rate. The contrasting outlooks reveal the ongoing debate among experts regarding the appropriate monetary policy stance.
It is worth noting that some of the growth, inflation, and unemployment forecasts by Morgan Stanley and Goldman Sachs differ from the Federal Reserve’s projections for 2025. These differences further highlight the varying perspectives among financial institutions on the future course of the economy.
Overall, these divergent forecasts underscore the complexity of economic forecasting and the challenge of predicting the Federal Reserve’s actions. Despite the disparities, both firms share the belief that the US will be able to avoid a recession, even if hiring may experience a slowdown. Goldman Sachs’ forecast, in particular, represents a compromise between Fed officials who support lower rates and those who hold the view that the economy is already robust enough, adding an extra layer of complexity to the outlook.
Nevertheless, as the economy evolves and new data becomes available, it will be interesting to see which forecast more accurately reflects the Federal Reserve’s policy decisions in the coming years.
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