After one of the most aggressive monetary tightening campaigns in modern American history, Goldman Sachs believes the Federal Reserve is approaching the final chapter — one more rate hike, and then a long, careful pause. The question is no longer how high rates will go, but how slowly the central bank will let them fall. In a world where inflation is cooling but the economy refuses to break, the Fed finds itself holding a difficult instrument: tight enough to restrain, loose enough to avoid rupture.
Goldman Sachs: Next Fed Rate Hike Will Be 'Last of the Cycle'
The last hike, but not the last of the tightening.
Mark
So Goldman is saying next week's rate hike is the last one. How confident are they in that call?
Mimi
They're fairly direct about it. They expect the Fed to raise to 5.25%-5.5% and then stop hiking. But they're also careful about what happens after—they're watching how Powell signals the pace going forward.
Luke
Right, but "last hike" and "no more hikes for a while" are different things. The source says Goldman thinks the Fed will stay hawkish longer than markets price in. That's the real call.
Mark
What's driving that view? Why would the Fed stay restrictive if inflation is cooling?
Mimi
Inflation did slow sharply in June, which Goldman sees as potentially significant. But demand is still running hot, and financial conditions have actually eased even with higher rates. So the Fed has conflicting signals.
Luke
And Goldman's betting the Fed will weight the demand side more heavily than the market is currently pricing. That's a forecast about Fed behavior, not a fact about the economy.
Mark
When does Goldman expect rate cuts to actually start?
Mimi
Second quarter of 2024. They're modeling cuts of 25 basis points per quarter, gradually bringing rates down to 3% to 3.25%.
Luke
That's nine months away. And that assumes no recession, which is Goldman's view but not everyone's view. If the economy weakens faster than they expect, that timeline could shift dramatically.
Mark
So the real story is that the Fed is probably done hiking, but it's going to stay tight for a long time?
Mimi
That's the essence of it. One more hike, then a long pause, then gradual cuts. Not a quick pivot.
Luke
And that's Goldman's read based on their economic forecast. Other firms might see the inflation slowdown and expect cuts sooner.
El Pulso
- The Fed is expected to raise its benchmark rate to 5.25%-5.5% next week — a level Goldman Sachs believes will mark the peak of the most aggressive tightening cycle in decades.
- Inflation cooled sharply in June, offering a potential turning point, but strong consumer demand and loosening financial conditions are keeping the Fed from declaring victory.
- Markets are watching Chair Powell's words as closely as his actions — any signal about the pace of future moves could reprice trillions in assets overnight.
- Goldman does not expect a recession, which means the Fed has little reason to rush toward cuts, keeping borrowing costs elevated longer than many investors are pricing in.
- Rate relief is projected to arrive gradually starting Q2 2024, with cuts of a quarter-point per quarter eventually bringing rates down to 3%-3.25% — a slow descent, not a pivot.
After one of the most aggressive monetary tightening campaigns in modern American history, Goldman Sachs believes the Federal Reserve is approaching the final chapter — one more rate hike, and then a long, careful pause. The question is no longer how high rates will go, but how slowly the central bank will let them fall. In a world where inflation is cooling but the economy refuses to break, the Fed finds itself holding a difficult instrument: tight enough to restrain, loose enough to avoid rupture.
Goldman Sachs is telling its clients that next Wednesday's Federal Reserve rate hike — expected to push the benchmark rate to 5.25%-5.5% — will be the last of the current tightening cycle. After months of aggressive increases aimed at bringing inflation back toward the Fed's 2% target, the firm believes the central bank is finally nearing the end of its climb.
But the more consequential question, Goldman argues, is what Chair Jerome Powell signals about what comes next. In June, Powell hinted at a "careful pace" of future tightening — language widely interpreted as a shift toward raising rates every other meeting rather than at every one. Markets are hanging on that distinction.
The economic backdrop remains genuinely complicated. Inflation cooled meaningfully in June, which Goldman flagged as a potential turning point. Yet demand growth in the first half of 2023 ran hotter than economists consider sustainable, and financial conditions have actually loosened even as rates have risen — an unusual dynamic that gives the Fed reason to stay cautious.
Goldman does not foresee a recession as the most likely outcome, which removes the pressure for a rapid policy reversal. Instead, the firm expects the Fed to hold a more hawkish stance than markets currently anticipate, with rate cuts beginning only in the second quarter of 2024 and proceeding at a measured pace of a quarter-point per quarter — eventually settling between 3% and 3.25%.
For anyone borrowing, saving, or investing, the message is straightforward: the era of rising rates may be ending, but the era of cheap money is not returning anytime soon.
Goldman Sachs analysts are calling the Federal Reserve's rate increase scheduled for next Wednesday the final move in a tightening campaign that has reshaped borrowing costs across the American economy. The firm expects the central bank's policy committee to push the benchmark rate into the 5.25% to 5.5% range—a level that would cap months of aggressive increases aimed at wrestling inflation back toward the Fed's 2% target.
But the real question, according to Goldman's note to clients, is not whether the Fed will raise rates one more time, but how clearly Chair Jerome Powell will signal what comes after. In June, Powell spoke of adopting a "careful pace" of tightening, language that Goldman and other observers have interpreted as a shift toward raising rates every other meeting rather than at every gathering. That signal matters enormously to markets trying to price in the Fed's next moves.
The economic picture the Fed is navigating remains genuinely mixed. Inflation, the force that drove the central bank to raise rates at a pace not seen in decades, cooled noticeably in June. Goldman's analysts flagged this as potentially "a turning point" in the Fed's fight against elevated prices. Yet the same economy that is cooling on the inflation front has shown other signs of resilience. Demand growth in the first half of 2023 outpaced what economists consider sustainable, and financial conditions—the cost and availability of credit—have actually loosened even as rates have climbed.
These crosscurrents have left Goldman expecting the Fed to hold a more hawkish line than financial markets currently anticipate. The firm does not see a recession as the most likely outcome, which removes one major reason the Fed might pivot quickly to cutting rates. Instead, Goldman believes the threshold for rate cuts will be high and that any reductions will come gradually. The firm projects the Fed will begin cutting rates by a quarter-point per quarter starting in the second quarter of 2024, eventually bringing the benchmark rate down to somewhere between 3% and 3.25%.
That forecast amounts to a bet that the Fed will stay restrictive longer than many investors expect. It also suggests that even after the rate hikes end, the central bank will remain cautious about loosening its grip on the economy. For borrowers, savers, and investors, the implication is clear: relief from higher rates may come, but not soon, and not all at once.
Citas Notables
The key question is how strongly Fed Chair Powell will signal the 'careful pace' of tightening he advocated in June, which observers have interpreted as an every-other-meeting approach.— Goldman Sachs analysts
Goldman expects the Fed to remain more hawkish than market pricing, reflecting lower recession probability and expectations that the threshold for rate cuts will be fairly high and cuts will be gradual.— Goldman Sachs analysts
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