The Fed's "crazy" interest rate hike is approaching, will it cut interest rates in 2024?

Original title: "Fed's "crazy" interest rate hike week begins, Goldman Sachs predicts that interest rate cut may have to wait until 2024"

Original author: Mary Liu

Original source: BitpushNews

Investors are preparing for even more "crazy" rate hikes. The 10-year U.S. Treasury yield jumped above 3.5% on Monday, its highest level since 2011, ahead of the Federal Reserve's two-day meeting on Sept. 20-21, with officials widely expected to meet on Wednesday ET. After the 2:00 pm discussion, the benchmark interest rate will be raised by 75 basis points for the third time in a row, and Goldman Sachs speculates that the Fed will not cut interest rates until 2024.

Traders will be hearing from Federal Reserve Chairman Jerome Powell ( Jerome Powell's press conference, U.S. central bank members' economic forecasts and the latest dot plot showing each official's forecast for the central bank's key short-term interest rate.

The interest rate hike signal has been advanced Release

Fed officials have discussed the outlook for interest rate policy in previous weeks There was unanimous hawkish rhetoric. The Fed must lower inflation until its target is met, they said.

Powell is in Speaking on September 8, he said: "To a large extent, our view and my view is that now we need to act as directly and firmly as we have been doing, and we need to persist until the work is done."

Fed Vice Chairman Lael Brainard and Oversight Vice Chairman Michael Barr both made similar remarks. Barr bluntly stated that higher interest rates may cause "some pain in the economy." , but "worse...to keep inflation too high."

Key data and market reaction

The expected reading from the Federal Reserve could determine whether the market takes a reprieve from the sell-off or continues to fall sharply.

On Friday, all three major U.S. stock indexes posted their worst week since June. For the week ended Sept. 16, the benchmark S&P 500 fell 4.7%, the Dow Jones Industrial Average fell 4.1% and the tech-heavy Nasdaq Composite lost 5.5%.

The U.S. Bureau of Labor Statistics reported last Tuesday that the Consumer Price Index (CPI) rose 8.3% in August from a year earlier, an increase from the previous month. 0.1%. Economists had expected prices to rise 8.1% from last year and down 0.1% from the previous month, according to Bloomberg estimates.

This week , a slew of housing-related data from the U.S. is due to be released, with indicators such as building permits, housing starts and existing home sales all being closely watched. Mortgage rates surged above 6% last week, the highest level since November 2008, fueling concerns about lending affordability. Credit card borrowing costs are at their highest level since 1996, according to Bankrate.com.

As the earnings season approaches in October, many strategists are also sounding the alarm on earnings expectations for major public companies.

S&P 500 third-quarter earnings growth is expected to be 3.7%, according to FactSet Research, well below the 9.8% growth forecast at the end of June.

Analysts have downgraded every sector in the S&P 500 excluding energy to third in the past 2-3 months. Quarterly earnings expectations, seven of the 11 sectors in the index are now expected to report outright year-over-year earnings declines, compared with just three in the second quarter.

Recession Warning

Powell and other Fed officials have repeatedly stressed that the central bank's goal is to achieve a "soft landing," meaning they will slow economic growth to curb inflation without triggering a recession.

However, after the government reported last week that inflation had hit 8.3% over the past year, that target appears to have become more out of reach. To make matters worse, so-called core prices, which exclude volatile food and energy categories, rose much faster than expected.

The data sparked a new round of pessimism that the Fed's "violent interest rate hike" will lead to an economic recession.

Wall Street heavyweights including Bank of America, Goldman Sachs and Nomura raised their rate forecasts immediately after the CPI data, It also raised expectations for a hard landing, a sharp decline after a period of rapid growth.

Goldman Sachs has warned that stocks could plunge another 26% if the Fed's rate hike action triggers a recession.

The investment bank said: "If only a severe recession - and a tougher Fed response - can rein in inflation, Then there could still be plenty of downside for stocks and government bonds, even after the losses we've seen."

Bank of America Chief investment strategist Michael Hartnett said in a note Friday that earnings-per-share recession shocks could be the catalyst for new market lows.

Analysts at Bank of America, led by Michael Gapen, opined: "In the updated forecast, we Moderation, rising unemployment, and rising terminal interest rates – however, we expect the path of inflation to remain largely unchanged, which in our view suggests that the risk of a hard landing is rising, although we expect nearly half of our members to forecast a softer Landing.”

A Brookings Institution study published earlier this month said the recession and mass layoffs will Is necessary to slow price rises, the unemployment rate may have to be as high as 7.5% to bring inflation back to the Fed's 2% target.

When is the interest rate hike?

Goldman Sachs predicts that the Fed will not cut interest rates until 2024.

Analytics team at Goldman Sachs, led by Jan Hatzius, sees the Fed raising interest rates four times between now and the end of 2023, followed by a The interest rate remains in a range of 4.25% to 4.50% until 2024. Goldman, like many others, expects the Fed to raise rates by 75 basis points later this week.

Goldman Sachs also expects the Fed to raise interest rates by another 50 basis points in November and December, followed by one rate hike in 2023, One rate cut in 2024. "We see several reasons for a change of plan, with equities struggling to shake off pressure from the Fed's financial tightening, strength in the labor market reducing concerns about overtightening at this stage, and Fed officials now appear to want With faster and more consistent progress in reversing the overheating, some officials may have reassessed the short-term neutral rate."

Private equity billionaire David Rubenstein, co-founder of The Carlyle Group, said in a Fox News interview , if the Fed raises interest rates by 100 basis points, it will "shock" the market. "If they hit 100 basis points, I think it would shock the market," he said. "I know a certain percentage of people in the market, about 14 percent, think it might be 100 basis points, but I don't think they want to hit the market like that, if they Going to raise 100 basis points, I think they are overdue for some signal."

Cleveland Fed President Loretta Mester is one of 12 officials who will vote on the Fed decision this week. sees a need to raise the Fed's interest rate to "just above 4% and keep it there" early next year. "I don't expect a rate cut next year," Mester added.

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