Goldman Sachs Economist: June Fed Rate Cut at Risk of Delay

Fed Meeting Analysis

• 💡 The Federal Reserve's recent meeting was generally within expectations, with the Summary of Economic Projections lifting the year-end core PCE forecast to 2.8% while keeping median rate cut expectations at two.
• 🧐 Jan Hatzius noted that Fed Chair Powell seemed more dismissive of recent increases in inflation expectations, particularly from surveys like the University of Michigan.
• 📉 This suggests Powell may be more concerned about growth risks and more tolerant of higher inflation if it means potentially lowering rates.

Monetary Policy Outlook

• 🎯 The Fed's focus remains on interest rates, though the additional taper on Quantitative Tightening (QT) was also noted as a factor influencing market perception.
• 🗓️ Powell indicated that assessing the net effects of various policy forces, including fiscal, immigration, trade, and deregulation, will take time, suggesting a slower path to rate cuts.
• ⚠️ A rate cut in May is considered highly unlikely, with June being the next potential window, but even that is now at risk of delay.

US Economic Conditions

• ✅ The US economy is entering a period of policy uncertainty in a strong position, with great productivity numbers and a tailwind from post-COVID normalization.
• 📈 Wages are growing faster than prices, and consumer balance sheets are solid, providing offsets to potential pressure points.
• 📊 However, the impact of tariffs remains a significant unknown, and a slowdown is expected, though its substantiality is yet to be determined.