NEW YORK – Goldman Sachs has forecasted that the Federal Reserve will maintain its current interest rate range into next year, with an eventual equilibrium rate projection raised to between 3.5% and 3.75%. This prediction comes as central banks globally navigate economic and inflationary pressures, with a gradual unwinding of policy measures in sight.
The investment bank’s outlook suggests that the Fed’s cautious approach to policy changes will likely prevent any rate hikes or reductions in the near term. Meanwhile, the European Central Bank (ECB) is also expected to hold steady, with a final interest rate hike pegged at 4%.
Looking ahead to the latter part of next year, Goldman Sachs anticipates the Fed will begin to reduce rates in late Q4. The reductions are expected to take place at a measured pace with standard size quarterly cuts. This aligns with a broader strategy of gradual monetary tightening as the economy adjusts post-pandemic.
In Europe, the ECB is preparing to scale back its Pandemic Emergency Purchase Programme (PEPP). Starting from Q2 2024, the bank plans to limit reinvestments to EUR 10 billion per month. Additionally, it intends to commence rate trimming earlier than the Fed, beginning in mid-Q3.
By Q3 2025, the ECB aims to have halted all PEPP reinvestments and is targeting a policy rate around half of its current level by the end of Q4 that year. Both central banks are proceeding with caution, reflecting a global trend of careful monetary policy management during a period of economic uncertainty.
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