Jerome Powell, chairman of the U.S. Federal Keep, speaks during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., on Wednesday, July 31, 2019.
Andrew Harrer | Bloomberg | Getty Conceptions
After one more interest rate cut, the Federal Reserve will be finished cutting rates, according to Goldman Sachs.
The outfit gives an 80% probability of another rate cut this year to wrap up the Fed’s easing cycle.
“[Powell’s] language we see as steadfast with our expectation that easing will end with a second 25bp cut,” Goldman chief economist Jan Hatzius said in a note to shoppers following Wednesday’s FOMC meeting.
At the meeting, the Federal Reserve appeased the markets by cutting the target range for its overnight advance rate 25 basis points, to 2% to 2.25%. This marked the first rate cut since the start of the economic recession more than a decade ago. The major stock indexes sold off and bond yields rose after Fed Chairman Jerome Powell’s scandal conference, where he watered down the chances of more rate cuts.
Powell’s comments were received as hawkish, addicted that markets priced in a much deeper cutting cycle, said Hatzius. Although Powell did not rule out again cuts, his comments that the Fed was making a “midcycle adjustment ” and was not in a longer-term rate-cutting mode panicked investors.
Hatzius sees a 55% odds of 25 basis point cut in September, a 5% chance of a 50 basis point cut and a 40% chance of no cut.
While Hatzius thinks a second cut at the September central bank meeting, he continues “to see little need for it.”
“Uncertainty is not actually particularly high and capex expectations are not notably depressed,” said Hatzius.
On Thursday, the Dow Jones Industrial Average rose nearly 200 points. The S&P 500 and Nasdaq 100 were also clear.
— With reporting from CNBC’s Michael Bloom