Goldman Sachs US Daily: January FOMC Preview - Further to Go, but Not for a While
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Goldman Sachs expects the January FOMC meeting to maintain the federal funds rate at 3.5-3.75% with only minor statement adjustments and no explicit forward guidance. Chair Powell is likely to emphasize that the committee has already delivered three rate cuts, helping stabilize the labor market, and now sits in a favorable position to assess cumulative impacts. If the labor market stabilizes as anticipated, the urgency for further easing diminishes.
The bank forecasts the next rate cut in June, followed by another in September, bringing the terminal rate to 3-3.25%. Risks skew toward additional dovishness rather than tightening, as the probability of rate hikes remains very low. Potential justifications for deeper cuts include a lower terminal rate, insurance cuts, or rising unemployment.
Goldman notes the labor market has not fully stabilized but expects improvement this year. The unemployment rate has held steady since September, excluding government shutdown distortions, though employment growth remains slightly below labor supply expansion.
The January meeting should be uneventful, with only Governor Miran likely to dissent in favor of cutting. This contrasts sharply with December's three dissents and a record seven soft dissents. Building stronger consensus for future normalization cuts requires more convincing inflation progress. Some participants focus on underlying inflation excluding one-off tariff effects, which is near 2%, while others emphasize official data still running closer to 3% in the first half.
Goldman's probability-weighted Fed forecast sits slightly below both its base case and current market pricing.