Goldman Sachs now says Fed won’t cut until June

Goldman Sachs Group Inc. economists have pushed back their view on when the Federal Reserve will begin cutting interest rates to June after parsing recent comments from the central bank and minutes of its January meeting.

The US investment bank has dropped its forecast for a May cut and now expects four reductions this year, versus five previously, with moves in June, July, September and December. It now sees four more cuts next year, versus a prior three, leaving the same terminal rate of 3.25%-3.5%, economists including Jan Hatzius wrote in a note dated Feb. 22. 

Three top Fed officials hammered home the message Thursday that the US central bank is still on track to cut interest rates this year — just not anytime soon. As recently as mid-January, investors and some economists were betting on the Fed to start lowering rates at its March 19-20 meeting. 

Hatzius and the Goldman economists note two changes in the Fed’s thinking. 

With strong economic data, officials have become less worried about keeping rates too high for too long and see the largest risks from past rate hikes having passed, meaning “cuts are therefore not urgently needed.” 

Secondly, Fed officials want more definitive evidence that inflation will approach 2% before cutting, “in part because some worry that the stronger performance of the economy could inhibit further progress in reducing inflation,” the economists wrote in the note.