Goldman Sachs Reportedly Predicts Fed May Skip January Rate Cut: Retail Keeps Guard Up For December Update

Goldman Sachs economists have reportedly indicated that the Federal Reserve is likely to hint at a slower pace of rate reductions in the future at its December meeting and may not cut rates in January.

While the economists expect a quarter-point rate reduction later this week, they noted that recent comments point toward a clear bias toward cutting down the pace of rate reductions, a Bloomberg report said.

The central bank's expected stance comes amid unemployment undershooting its projections for 2024 and inflation remaining above its target.

“The key question for the statement and press conference is the relative emphasis put on slowing the pace versus on decisions remaining meeting-by-meeting and data-dependent,” the economists wrote, according to a Bloomberg report. “We expect to hear both messages, including an addition to the statement that nods toward a slower pace.”

According to the CME FedWatch Tool, traders are factoring in a 99.1% probability of a 25 basis points rate reduction on Dec. 18.

“Both our baseline and probability-weighted Fed forecasts remain somewhat more dovish than market pricing,” the economists stated. “One key reason is that we see the risks to interest rates from potential policy changes under the second Trump administration as more two-sided than is often assumed.”

According to data released last week by the U.S. Bureau of Labor Statistics, consumer price inflation in November rose faster annually, raising more questions on how the Fed’s December policy might pan out.

The 12-month inflation rate stood at 2.7%, after rising 2.6% over the 12 months ending October. The consumer price index showed that inflation increased 0.3% on a seasonally adjusted basis in November after rising 0.2% each of the previous four months.

Core inflation, excluding food and energy prices, rose 0.3% in November, as it did in each of the previous three months. BLS noted that indexes that increased include shelter, used cars and trucks, household furnishings and operations, medical care, new vehicles, and recreation.

Meanwhile, the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust, Series 1 (QQQ) were trading in the green on Monday noon but retail investors turned cautious ahead of Wednesday’s policy announcement. The sentiment meters for both ETFs were trending in the ‘neutral’ territory on Monday.

SPY’s Sentiment Meter and Message Volume as of 12:33 p.m. ET on Dec. 16, 2024 | Source: Stocktwits QQQ’s Sentiment Meter and Message Volume as of 12:34 p.m. ET on Dec. 16, 2024 | Source: Stocktwits

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