Waller's remarks raise risk of a later first cut by Fed: Goldman Sachs

Goldman Sachs said that the first interest rate cut may come later than the bank’s forecast of July, citing the latest comments by Federal Reserve Governor Christopher Waller.

In his Tuesday speech, Waller stated that he would "need to see several more months of good inflation data before [he] would be comfortable supporting an easing in the stance of monetary policy."

With only two months of inflation readings before the July meeting, the bar for inflation alone to prompt rate cuts appears "fairly high," Goldman noted. The threshold of “several” months implies that inflation data must consistently show progress, which may not align with the bank's expectations.

“However, we have not made any changes to our baseline of a first cut in July and two cuts total in 2024 at this stage,” the Wall Street firm added.

This is because Waller's views may not reflect the consensus within the Federal Open Market Committee (FOMC), while the labor market has shown signs of slowing recently.

Further softening in labor market data, coupled with moderate improvements in inflation, could persuade the FOMC to begin normalizing policy sooner than Waller's suggested timeline, Goldman Sachs said.

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