Goldman expects 3 Fed rate cuts to offset coronavirus damage


Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., on Wednesday, Jan. 29, 2020.

Andrew Harrer | Bloomberg | Getty Images

Goldman Sachs said it expects the Federal Reserve to deliver an interest rate reduction of 75 basis point in the coming months to combat the negative economic impact from the coronavirus.

“Although moderate Fed rate cuts are unlikely to be very powerful, the committee will probably be reluctant to disappoint market expectations for substantial rate cuts for fear of tightening financial conditions further,” Jan Hatzius, Goldman’s chief U.S. economist, said in a note on Friday.

The bank sees three rate cuts from the Fed from March through June. Goldman’s expectations largely match the market’s outlook for the monetary policy. Amid the massive sell-off this week, the fed funds futures market has assigned a more than 70% chance of a rate cut at the Fed’s March policy meeting, according to the CME FedWatch Tool.

However, some Fed officials expressed reluctance to cut rates immediately. St. Louis Federal Reserve President James Bullard said Friday before he would consider cutting interest rates.

The bank said the coronavirus-triggered slowdown would be “a short-lived global contraction that stops short of an outright recession.”

“Our new baseline scenario involves a continued slowdown in infections in China that allows for a slow recovery in high-frequency indicators of economic activity,” Hatzius said. “It also includes moderate supply chain disruptions in the global goods-producing sector.’

Goldman said this week it sees zero earnings growth for American companies in 2020 due to the coronavirus.

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