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Goldman Sachs and Morgan Stanley Disagree on Federal Reserve Rate-Cut Predictions

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Leading investment banks Goldman Sachs and Morgan Stanley have provided conflicting forecasts on the Federal Reserve’s future rate-cutting decisions. While both banks expect rate cuts, their timing, magnitude, and final target rates differ, reflecting variations in economic outlooks.

Morgan Stanley’s Forecast:

Morgan Stanley’s research team, led by Chief US Economist Ellen Zentner, predicts that the central bank will commence rate cuts in June 2024. Subsequently, they anticipate rate cuts at every meeting from the fourth quarter of 2024, with reductions of 25 basis points each time. By the end of 2025, they project the policy rate to reach 2.375%.

Goldman Sachs’ Forecast:

Goldman Sachs, on the other hand, foresees the first rate reduction of 25 basis points in the fourth quarter of 2024. They predict further rate cuts on a quarterly basis through mid-2026, with a total reduction of 175 basis points. According to their outlook, rates will eventually settle within a target range of 3.5% to 3.75%.

Fed Projections and Comparison:

The Goldman Sachs predictions align more closely with the Federal Reserve’s own estimates from September. Fed projections included two quarter-point cuts for next year, with the policy rate projected to be 3.9% at the end of 2025. However, these estimates are subject to potential revisions as Fed governors and regional bank presidents update their forecasts at the upcoming meeting.

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Reasoning Behind the Forecasts:

Morgan Stanley suggests a weaker economy justifying a more substantial easing of rates without forecasting a recession. They project a peak unemployment rate of 4.3% in 2025, higher than the Fed’s estimate of 4.1%. Growth and inflation are expected to be slower than anticipated by policymakers.

Goldman Sachs, on the other hand, expects relatively higher rates due to a higher equilibrium rate. They suggest that the post-financial crisis headwinds are behind us, and persistent budget deficits are likely to stimulate demand.

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Other Considerations:

Morgan Stanley’s team anticipates the Fed to begin phasing out quantitative tightening in September 2025 until it completely ends in early 2025. They expect the runoff caps on Treasuries to be reduced by $10 billion per month, while mortgage reinvestment into Treasuries continues.


Goldman Sachs and Morgan Stanley present diverging outlooks on the Federal Reserve’s rate-cutting trajectory. While both banks anticipate rate reductions, they differ in their timing, the extent of cuts, and final target rates. These contrasting forecasts reflect variations in economic projections, with Morgan Stanley highlighting a weaker economy and Goldman Sachs emphasizing a higher equilibrium rate. Ultimately, future economic developments and policy decisions will determine which path the Federal Reserve chooses to address the evolving economic landscape.

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