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Goldman Sachs still sees two rate cuts this year after Powell's speech

Goldman Sachs economists reiterated their expectation of two rate cuts this year following a Federal Open Market Committee (FOMC) meeting they described as "mostly uneventful but dovish." Chair Powell's press conference, despite a hawkish acknowledgement of the lack of inflation progress, conveyed a dovish message, according to the economists. The most notable aspect of Powell's speech was his strong rebuttal against interest rate hikes. He deemed an increase in policy rates as "unlikely" and expressed confidence in the current policy settings being sufficiently restrictive. Powell emphasized that the Federal Reserve would require convincing evidence of insufficient restrictiveness to consider rate hikes, which is currently absent. If inflation progress stalls, Powell suggested that the FOMC would likely delay any planned rate cuts rather than increase rates, setting a high threshold for potential hikes, as highlighted by Goldman.

While Powell offered no major clues on the timing of a rate cut, he maintained a consistently dovish tone on inflation, echoing views held by Goldman Sachs. Powell downplayed the significance of the inflation rise in the first quarter, noting ongoing wage growth and the lack of signs indicating an overheating economy. He also pointed out that inflation expectations remain stable and emphasized the time delays inherent in the inflation process. Powell expressed optimism that declining housing costs and ongoing improvements on the supply side will continue to exert downward pressure on inflation, projecting a decrease in inflation rates throughout the year.

Despite acknowledging lower confidence due to recent upside surprises in inflation, Powell forecasted that overall inflation would move back down this year. When asked about how the November elections might influence the Fed's ability to cut rates at upcoming meetings, Powell asserted that the elections would not affect the FOMC's decisions. Goldman Sachs economists maintained their forecast of two rate cuts this year, expecting them in July and November. They noted that Powell's message and the FOMC's stance continue to support their outlook.

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