Eliza Wong
Key Takeaways
– Goldman Sachs forecasts three 25-basis-point Fed rate cuts in 2024 starting September
– Recent CPI data shows cooling inflation with 0.2% July monthly increase
– Significant downward revisions to employment data strengthen case for easing
– Markets now price 93% probability of September rate cut
– Treasury Secretary Janet Yellen (珍妮特·耶伦) advocates for aggressive 50-bp cut
Monetary Policy Shift Ahead
The Federal Reserve stands at the precipice of a significant policy reversal after Goldman Sachs economists projected three consecutive 25-basis-point rate cuts starting this September. This anticipated pivot follows mounting evidence of cooling inflation and unexpected labor market softness. The concept of an insurance rate cut—preemptive easing to safeguard against economic deterioration—has gained substantial traction since July’s Consumer Price Index (CPI) data confirmed inflationary pressures are subsiding faster than anticipated. With terminal rates potentially declining from 4.25%-4.50% to 3.00%-3.25% by 2026, this forecast signals a fundamental recalibration of monetary policy. Market participants now overwhelmingly expect the Fed to initiate this new easing cycle at its September meeting, fundamentally reshaping the investment landscape for bonds, equities, and currency markets.
Goldman’s Rate Cut Roadmap
The investment bank’s detailed projection outlines a clear path for monetary easing:
2024 Cutting Schedule
– September: 25-basis-point insurance rate cut
– October: Second 25-bp reduction
– December: Third cut completing 75-bp easing
This timeline would bring the federal funds rate down to 3.50%-3.75% range by year-end. Goldman further anticipates two additional cuts in 2026, ultimately establishing a terminal rate between 3.00%-3.25%. The forecast represents a notable acceleration from prior expectations, largely driven by recent economic developments.
Data Driving the Decision
Two critical reports solidified Goldman’s position:
1. July CPI rose just 0.2% month-over-month, matching expectations
2. Downward revisions revealed weaker-than-reported job growth
The combination suggests economic momentum is slowing sufficiently for the Fed to transition from inflation combatant to economic protector. Goldman economists emphasize this insurance rate cut strategy prioritizes prevention over reaction—acting before deterioration becomes entrenched.
Inflation Cool Down Accelerates
July’s inflation data provided the clearest signal yet that price pressures are moderating:
CPI Breakdown
– Gasoline prices declined 2.2% month-over-month
– Food prices stabilized with 0.0% change after consecutive 0.3% increases
– Core services inflation slowed notably
This cooling occurred despite implementation of new tariffs, suggesting their impact remains contained. Goldman analysts highlighted that “tariff-related price pressures appear largely temporary” in their client note. The inflation trajectory now sits comfortably within the Fed’s comfort zone, removing the primary obstacle to rate cuts.
Labor Market Deterioration
While inflation improvement opened the door for easing, employment concerns provided the push:
Alarming Revisions
– May-June job growth revised down by 111,000 positions
– The magnitude represents the largest non-recession adjustment in 57 years
– Monthly growth potentially overestimated by 45,000-80,000 throughout past year
Goldman’s analysis concluded these revisions fundamentally changed the employment narrative: “Recent employment report adjustments were the most significant outside recession periods since 1967.” This unexpected weakness transforms labor data from a restraining factor into an active catalyst for policy easing.
September Certainty
Based on this deterioration, Goldman declared a September insurance rate cut “highly probable” even before July’s CPI confirmation. The only remaining debate centered on magnitude—25 versus 50 basis points. The subsequent inflation data solidified expectations for the more measured 25-bp insurance rate cut approach.
Market Expectations Converge
Trading activity reflects overwhelming consensus around Goldman’s projection:
Probability Metrics
– 93% chance of September rate cut (LSEG data)
– 7% probability of larger 50-bp reduction
– Traders now price 65 bps of total 2024 cuts versus 60 bps last week
These metrics represent the most aggressive easing expectations all year. The shift occurred rapidly following consecutive soft data prints, with Wednesday’s pricing reflecting:
Notable Developments
– Treasury Secretary Janet Yellen (珍妮特·耶伦) publicly advocated for deeper cuts
– Fed funds futures volume spiked to year-to-date highs
– Bond market implied volatility declined as consensus solidified
This alignment between institutional forecasts and market pricing creates powerful momentum toward September action.
Political Pressure Intensifies
U.S. Treasury Secretary Janet Yellen (珍妮特·耶伦) injected political dimension into the debate with unambiguous advocacy:
Yellen’s Position
– Called for 50-bp September cut specifically
– Recommended 150-175 bps total reduction cycle
– Cited “overly tight” policy harming economic potential
Her Tuesday-Wednesday interview remarks represented unprecedented public pressure on Fed independence. The Treasury Secretary justified her position by highlighting:
Supporting Evidence
– Three consecutive months of softening employment
– Declining small business hiring intentions
– Rising initial unemployment claims
While the Fed maintains operational independence, such prominent advocacy from the administration’s top economic official adds contextual pressure.
Strategic Implications
This insurance rate cut approach carries distinct advantages and signals:
Preemptive Benefits
– Mitigates recession risk before deterioration accelerates
– Maintains labor market stability
– Demonstrates Fed flexibility and responsiveness
Historical analysis shows such preemptive moves typically extend economic cycles. The measured 25-bp approach balances responsiveness against overreaction concerns.
Portfolio Considerations
Investors should position for:
– Steeper yield curve (2-10 year spread widening)
– Sector rotation toward rate-sensitive equities
– Dollar depreciation against major currencies
Goldman specifically recommends duration extension in fixed income and quality growth stocks in equities to capitalize on this new monetary phase.
Forward Guidance Framework
The path beyond September depends on two key pillars:
Data Monitoring Priorities
– Employment reports (particularly wage growth metrics)
– Services inflation persistence
– Consumer spending resilience
Goldman expects labor data to dominate Fed decision-making through year-end. Any further deterioration would validate their three-cut forecast, while stabilization could slow the pace.
Communication Strategy
The Fed will likely utilize:
– Jackson Hole Symposium (August 22-24) for signaling
– September dot plot update to guide expectations
– Careful language distinguishing insurance cuts from recession response
This communication sequence provides multiple opportunities to prepare markets for the coming easing cycle.
Preparing for the Pivot
The convergence of cooling inflation, softening employment, and supportive market pricing makes the September insurance rate cut increasingly inevitable. This monetary pivot will fundamentally reshape the investment landscape across asset classes. Investors should immediately review portfolio duration, equity sector exposure, and currency positions to align with the new easing paradigm. Monitor August employment data (releasing September 6) for final confirmation before the Fed’s September 18 decision—this report will determine whether Goldman’s three-cut forecast becomes reality. The era of monetary restraint is ending; proactive positioning is now essential.
