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Federal Reserve Likely to Hold Interest Rates Steady, Says Goldman Sachs

According to strategists at Goldman Sachs, the Federal Reserve is unlikely to raise interest rates at its annual meeting scheduled for the end of next month. They cite several factors for this projection, including more positive developments on the inflation front.

Goldman Sachs’ report suggests that by November, the Federal Open Market Committee (FOMC) may be convinced to forego a final rate hike for the year. They base this prediction on expectations of further rebalancing in the labor market, more encouraging news regarding inflation, and the anticipated economic challenges in the fourth quarter.

Additionally, the strategists anticipate that the Federal Reserve will revise its U.S. economic growth projections for 2023 during its upcoming policy meeting, which is scheduled for September 19-20. They expect this revision to increase the growth projection from 1% to 2.1%. However, the “dot plot” projection, which reflects individual policymakers’ expectations, may still indicate one more rate hike, primarily as a measure to maintain flexibility. This projection is likely to be supported by a narrow majority, with a vote of 10-9 in favor of one more hike.

As of the time of this report, the CME FedWatch Tool indicated a 98% likelihood that the Federal Reserve would keep interest rates unchanged, aligning with the predictions from J.P. Morgan Asset Management and Janus Henderson Investors. The tool also suggests a slightly more than 72% chance of rates remaining stable at the end of October.

Jim Baird, CIO of Plante Moran Financial Advisors, noted that the Fed’s decision in the coming months would depend on the tone of incoming economic data. While the Fed has raised interest rates 11 times since last year, the trajectory of future rate hikes will be guided by the evolving economic landscape.

Overall, the consensus appears to be that the Federal Reserve is likely to take a cautious approach in the near term, carefully assessing economic indicators before considering further adjustments to interest rates.

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