On Friday, Goldman Sachs (NYSE:GS) forecasted a series of consecutive 25 basis point reductions in the federal funds rate for the remainder of the year. The revised prediction includes cuts in September, November, and December, a change from their previous expectation of rate adjustments every other meeting.
The adjustment in Goldman's outlook follows July's employment report, which showed nonfarm payrolls increasing by 114,000, falling short of market expectations. The report also indicated a decline in the payrolls diffusion index to its lowest since May 2016, and a rise in the unemployment rate from 4.1% to 4.3%.
Despite Hurricane Beryl's impact being deemed negligible by the Bureau of Labor Statistics (BLS), there was a notable increase in workers not at work due to weather conditions and a rise in the number of unemployed workers on temporary layoff.
Goldman Sachs' analysis suggests that the actual pace of job growth, after adjusting for undercounting of immigration, stands at 146,000 jobs. Additionally, the increase in average hourly earnings was a modest 0.2% month over month in July, which was below the anticipated figures. The firm's estimate of the underlying pace of average hourly earnings growth is currently at 3.9%.
The investment bank indicated that the softening in labor market conditions has exceeded the level that was considered tolerable. As a result, they have adjusted their expectations to include the upcoming rate cuts. Goldman also noted that if the employment report in August confirms a continued slowdown in job growth, a more substantial 50 basis point cut may be considered at the September meeting.
In other recent news, the U.S. Labor Department reported weaker-than-expected July payroll numbers, sparking speculation about potential Federal Reserve interest rate cuts. Analysts from Evercore and BofA Global Research anticipate the Federal Reserve to implement these cuts as early as September, with Evercore suggesting a more aggressive approach of three rate cuts. BCA Research, on the other hand, predicts a decline in the S&P 500 to 3750, foreseeing a recession towards the end of 2024 or the beginning of 2025.
Conversely, a Federal Reserve report reveals U.S. households have reached a record net worth of $161 trillion in the first quarter of 2024, largely due to rising equity prices and real estate values. These recent developments highlight the complex interplay between monetary policy decisions, market expectations, and economic indicators.
Despite the forecasted rate cuts and potential recession, the increase in household wealth could potentially contribute approximately 1 percentage point to GDP growth, as predicted by economists at BNP Paribas (OTC:BNPQY). However, these are only projections, and actual outcomes may vary based on a multitude of factors.
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