Goldman’s seen enough.
On Friday, David Mericle threw in the towel on the bank’s call for a July rate cut from the Fed.
They held off as long as they could, but Thursday’s overshoot on the S&P Global services PMI and downside surprise for initial claims (which, I can’t emphasize enough, was for May NFP survey week) tipped the scales.
“Earlier this week, we noted that comments from Fed officials suggested that a July cut would likely require not just better inflation numbers but also meaningful signs of softness in the activity or labor market data,” Mericle wrote, ahead of the long holiday weekend in the US. “After the stronger May PMIs and lower jobless claims, this does not look like the most likely outcome.”
No, it doesn’t. Frankly, I wonder if they were just looking for an excuse. I’m not sure I can remember an instance of a major Wall Street firm changing their Fed call based on S&P Global’s PMIs, let alone flash prints, nor based on a single week’s initial claims.
In light of inflation realities, a July cut would likely require consecutive weak NFP readings, where “weak” would probably have to mean negative or close to it. This week’s data didn’t make such an outcome more or less likely: It was extremely unlikely regardless.
Anyway, it’s gonna be September now, Goldman reckons. “Four additional CPI reports will be available by the September meeting, and if monthly core CPI inflation averages in the high 20s and core PCE in the low 20s, as we expect, then we think most FOMC participants will support a rate cut,” the bank said.
The table above shows Goldman’s forecasts.
In what I imagine was an accidental instance of dry humor, Mericle noted that the “timing of the first cut remains a difficult question” in part because rate cuts are “optional, which lessens the urgency” and also because even if inflation improves further by September, it’ll still be “hardly perfect.”
Aren’t they clever those people at Goldmans with their monthly forecasts.
Not sure what this means. Every bank has monthly forecasts for every top-tier data point.
On April 5th, Goldman cut the APY offered on their Marcus high yield savings accounts by 10bps to 4.40% in anticipation of a June rate cut by the Fed. I think that they always knew that June wasn’t going to happen, but they had to wait until the last minute to capitulate on the June cuts, or else it makes the 10 bps early grab seem even worse/greedier.
Well they didn’t capitulate on a June rate cut, they capitulated on a July rate cut, but more to your point: I can assure you there’s no connection whatsoever between Marcus rates and Goldman’s house Fed call. Nobody with a Marcus account has access to this research and nobody who gets this research directly would be caught dead owning a Marcus account. Having a Marcus account will get you laughed out of a cocktail party. People have a misconception about the extent to which all of this stuff is intertwined. Goldman doesn’t need to “justify” a lower rate on a retail/consumer savings product by way of research that’s only available to institutional investors. It’s not exactly like a hedge fund that uses Goldman’s prime desk gets this note and thinks “Aha! So that’s why I’m getting 10bps less on that $10,000 I have at Marcus!”
As you’ve alluded to frequently of late, we’re heading towards describing inflation rates in basis points with all of this precision parsing, and tenths of basis points appear all but inevitable. We merely need to squint a little harder if we wish to make distortion-prone estimates a little clearer.