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Delayed Rate Cut Expectations From J.P. Morgan And Goldman Sachs

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J.P. Morgan and Goldman Sachs expected the Federal Reserve to hold the interest rate unchanged at the two decade high between 5.25% and 5.5% after the Federal Open Market Committee (FOMC) meeting.

The FOMC began the two-day meeting on Tuesday. Market observers have divided views on the Fed’s decision on Wednesday. The announcement on the pace of its balance sheet reduction program was released on Wednesday afternoon. 

After this, Chair Jerome Powell held a press conference to deliver the decision to the public.

Paul Davidson, a popular economist, said, “Interest rates have been in holding patterns for months.” The economic forecasters had projected that the first rate cut for 2024 would be in June, with a total of three rate cuts in the year. With the passage, they predicted a single rate cut in September 2024.

JP Morgan’s Expectations Of Fed Rate Cut

Dr. David Kelly, Chief Global Strategist at J.P. Morgan, shared the company’s expectations in the company’s weekly episode, “The Right Track,” before the release of the actual minutes of the Fed meeting.

As the Federal Open Market Committee convenes, market expectations for imminent rate cuts have diminished drastically, with futures markets pricing in just a 14% probability of a June rate cut and only one rate cut for 2024 fully priced in. Fed officials have adopted a more hawkish tone recently, reflecting this in their communication. 

They are likely to acknowledge the stall in progress towards lower inflation and express the need for further time to assess the situation. Any heightened hawkish messaging from the Fed could unsettle markets, potentially leading to no rate cuts in 2024 or further tightening.

Nonetheless, long-term investors need not fret, as the economy shows positive signs in terms of growth, job creation, real wages, and inflation. With interest rates and inflation seemingly aligning, the current 10-year Treasury yield of 4.62% appears reasonable, fostering growth while correcting overvaluations. 

Investors should focus on how to navigate the post-pandemic economic landscape rather than whether to invest, ensuring optimal strategies for today’s extended soft-landing economy.

Are Expectations Of Goldman Sachs Similar To J.P. Morgan?

Goldman Sachs maintains its forecast for rate cuts by the Federal Open Market Committee (FOMC) in 2024, anticipating adjustments in July and November. They note that, while a rate cut is not immediate, softer inflation reports in the near term could prompt action.

However, the possibility of even modestly better-than-expected economic indicators could postpone these cuts. Despite rising bond yields, which reflect concerns about inflation, the S&P 500 has shown resilience, with a 6% return this year and near its all-time high. 

Stocks may continue to rally if higher interest rates stem from robust economic growth rather than hawkish policies. Most companies have surpassed earnings-per-share (EPS) estimates, buoyed by positive micro earnings results.

Goldman Sachs expects this earnings growth to drive a 3% lift in the index towards their year-end target of $5200. Nonetheless, they caution that delayed rate cuts could restrain equity valuations amidst expectations of continued disinflation.

Delayed Rate Cut Expectations

Both J.P. Morgan and Goldman Sachs foresee a cautious stance from the Federal Reserve regarding interest rate cuts in 2024. While differing slightly in timing, both institutions emphasize the importance of monitoring economic indicators closely for any shifts in policy. 

The resilience of the stock market amidst inflation concerns indicates confidence in economic growth. However, delayed rate cuts may pose challenges to equity valuations. Investors should remain vigilant and adapt their strategies accordingly, focusing on long-term prospects amidst the evolving economic landscape.

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