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Goldman skeptical of Fed rate cuts in the United States

(Reuters) – Goldman Sachs economists said on Sunday that they were skeptical about the US interest rate "cutback" by the US Federal Reserve to prevent a possible slowdown in US economic growth because global trade tensions.

FILE PHOTO: The Federal Reserve building is photographed in Washington, DC, United States, August 22, 2018. REUTERS / Chris Wattie / File Photo

A surprise escalation in trade tensions between Washington and Beijing since May, coupled with stubbornly low inflation, has led traders to bet that the US central bank could lower policy rates by 0.75% by the end of the year .

"However, we think that the hurdle of such cuts will probably be more important than what we believe," wrote Goldman economists in a research note published on Sunday.

A number of major traders, or the 24 largest Wall Street companies that deal directly with the Fed, expect the Fed to reduce its major borrowing costs as of this summer.

Goldman Sachs Group Inc. and a few other top-level traders have continued to say that the Fed would refrain from lowering rates as long as it would not be clear that business and consumer activities would deteriorate.

Goldman economists have stated that the quarter-point rate cuts in the 1995-96 and 1998-point rate cuts, highlighted by some analysts, are recent examples of the Fed's monetary easing. on an insurance ground. "

According to them, another assumption about insurance rate cuts is that Fed officials could reserve movements once the risk has decreased.

"However, the increased political control of the Fed's increases currently, particularly in the run-up to a presidential election, could make the task more difficult in 2020, so that too rapid cuts in insurance coverage could increase the risk that the funds rate will remain stuck at too low a level if the economy remains resilient, "they wrote.

On Friday, US interest rate futures imply that traders see about 58% chance that the Fed will drop short-term rates by 0.75 point by the end of the year, against 54% a week earlier and 7% a month earlier, according to the same source. FedWatch of the CME group too.

Fed decision makers will meet next Tuesday and Wednesday. Analysts expect it to pave the way for possible rate cuts later this year.

Interest rate futures have suggested to traders a 23% probability that the Fed will lower rates next week, up from 25% a week ago and 13% a month earlier, the program said. CME FedWatch.

Richard Leong report; Edited by Lisa Shumaker

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