Fed’s Kashkari raises prospect of zero rate cuts — but Goldman says that would be ‘very surprising’

Goldman
Sachs
Chief
Economist
Jan
Hatzius
on
Friday
said
that
he
still
expects
the
Federal
Reserve
to
implement
three
interest
rate
cuts
this
year,
adding
that
he
would
be “very
surprised”
if
the
U.S.
central
bank
ultimately
decided
no
trims
at
all
were
necessary.

His
comments
come
shortly
after
Minneapolis
Fed
President
Neel
Kashkari
became
the
latest
high-profile
official
to
float
the
possibility
of
zero
rate
cuts
before
the
year’s
end,
if
inflation
remained
sticky.

“If
we
continue
to
see
inflation
moving
sideways,
then
that
would
make
me
question
whether
we
need
to
do
those
rate
cuts
at
all,”
Kashkari
said
Thursday
during
an
interview
with

Pensions
&
Investments.

Separately,
Fed
Chair
Jerome
Powell

said
earlier
in
the
week
that
it
would
take
a
while
for
policymakers
to
evaluate
the
current
state
of
inflation,
leaving
the
timing
of
potential
interest
rate
cuts
uncertain.

Market
participants
have
been
closely
monitoring
comments
from
Fed
officials
about
the
expected
number
of
rate
reductions
due
to
take
place
this
year,
and
many
will
be
scouring
Friday’s
U.S.
jobs
data
for
further
clues
on
the
labor
market
and
inflation.

Speaking
to
CNBC’s
Steve
Sedgwick
on
the
sidelines
of
the
Ambrosetti
Spring
Forum
on
Friday,
Goldman
Sachs’
Hatzius
said
he
was
bullish
on
the
outlook
for
the
U.S.
economy.

“I’m
certainly
optimistic
on
this
year.
On
the
growth
side,
we’re
well
above
consensus,
close
to
3%
growth
this
year,”
Hatzius
said.

“We’re
well
below
consensus
in
terms
of
the
risk
of
a
recession.
We
think
15%
over
the
next
12
months,
which
is
sort
of
average
recession
probability,
since
we’ve
had
a
recession
about
once
every
seven
years
in
the
post-war
period.”

Hatzius
said
he
was
also
optimistic
that
robust
economic
growth
this
year
can
coincide
with
cooling
inflation,
projecting
that
the

personal
consumption
expenditures
price
index
will
come
in
at
2.4%
by
the
end
of
2024
and
at
2%
next
year.

The
core
PCE
price
index,
which
excludes
food
and
energy
components,
is
the
Fed’s
preferred
measure
of
inflation.

“In
that
sort
of
environment,
I
would
expect
some
rate
cuts
based
on
what
Chair
Powell
and
other
Fed
officials
have
said,”
Hatzius
said.

“That’s
more
uncertain.
The
timing
of
that
of
course
is
going
to
depend
on
near-term
data,
on
the
reaction
function
from
the
Fed
but
under
our
forecast
I
would
be
quite
surprised
if
we
didn’t
get
rate
cuts
this
year.
Quite
surprised.”

In
line
with
expectations,
the
U.S.
central
bank
last
month
held
interest
rates
steady
for
a
fifth
consecutive
meeting,
keeping
its
benchmark
overnight
borrowing
rate
at
5.25%-5.5%.
The
Fed
also
signaled
that
it
still
expects
three
quarter-percentage
point
cuts
by
the
end
of
2024.

Traders
pegged
a
nearly
94%
likelihood
that
rates
remain
unchanged
at
the
Fed’s
May
policy
meeting,
according
to
the

CME
Fed
WatchTool
as
of
Friday
morning.
They’re
anticipating
a
roughly
60%
probability
of
a
cut
at
the
June
gathering,
marking
a
significant
decline
from
a
week
ago.