Powell said it was unlikely to cut interest rates in March, and Goldman Sachs was “punched in the face” overnight to postpone expectations for the first rate cut in this round.

In the newly released report, Goldman Sachs Jan Hatzius and other analysts postponed the expectation that the Federal Reserve will cut interest rates for the first time from March to May.

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

Goldman Sachs expects PCE, the core of the Federal Reserve's most popular inflation indicator, to drop at least 20% this year compared to the FOMC 2.4% median forecast, and further decline in 2025.

As for the 2025 interest rate path, Goldman Sachs predicts that it will cut interest rates 3 times.

Overnight, the Federal Reserve continued to stand still as scheduled. The current monetary policy statement removed language implying further interest rate hikes in the future, saying that it is inappropriate to cut interest rates until there is more confidence in inflation falling to the target. Federal Reserve Chairman Powell said at the press conference after the meeting that the Federal Reserve remains open to cutting interest rates, but is not in a hurry to act, and does not think it is possible to cut interest rates in March.

In response, CICC Liu Gang's team said that it was too early to cut interest rates in March, but not too late to cut interest rates in May. The core message conveyed by the Federal Reserve this time is that it will cut interest rates but doesn't want the market to expect it too early.

Looking at the Federal Reserve's drastically revised meeting statement and Powell's statement at the post-meeting press conference, it can be seen that the Fed is preparing and paving the way for interest rate cuts, but it doesn't want the market to run away too much, so it is constantly “throwing cold water” on expectations of interest rate cuts in March.

We have always emphasized that expectations for interest rate cuts in March are already somewhat weak. After all, current US fundamentals do not support cutting interest rates too fast or too early, but it is still possible to cut interest rates early. As for whether to cut interest rates in March or May, the difference from an asset perspective is probably not that big. As long as the direction is clear, the direction of the transaction is clear; it's just that there will be some “back-and-forth” in the middle.

CICC also pointed out that it is still possible to cut interest rates early in March:

1) After all, Powell has already stated that “interest rate cuts are in sight” and has made a statement of turning;

2) The downward trend in inflation in the first half of the year was quite certain. We estimate that the overall and core CPI could fall below 3% in the second half of the year. The Federal Reserve also gave a threshold for cutting interest rates this time, that is, greater confidence that inflation is moving back to 2% (greater confidence that inflation is moving sustainably at 2%). There are still two CPI data to be confirmed before the March FOMC. This leaves “room” for policy changes, and the possibility of interest rate cuts is not directly ruled out.

3) Non-fundamental factors, such as hedging against tight liquidity and avoiding election interference, will also have a certain impact on the Fed's choice to cut interest rates early.

4) From a fiscal perspective, the first quarter was the peak of treasury bond maturity. Early interest rate cuts “helped” save the replacement costs of maturing treasury bonds and ease the pressure on US government departments to pay interest.

However, it should be noted that cutting interest rates early is counterproductive, and CICC advises not to directly extrapolate the path of subsequent interest rate cuts.

Editor/Somer