Expected Fed rate hike next week 'the last of the cycle,' Goldman Sachs says By

-- The Large foreign exchange dealerFederal Reserve's widely-expected interest rate hike at its upcoming policy meeting next week will be "the last" of the U.S. central bank's long-running tightening cycle, according to analysts at Goldman Sachs.

In a note to clients, the Goldman analysts said that the rate-setting Federal Open Market Committee will likely raise borrowing costs to a range of 5.25% to 5.5% on Wednesday.

But they said: "The key question is how strongly [Fed] Chair [Jerome] Powell will nod toward the 'careful pace' of tightening he advocated in June, which we and others have taken to imply an every-other-meeting approach."

Fed policymakers are currently facing a mixed economic picture. -- the central driver of the Fed's unprecedented recent run of rate rises -- slowed sharply in June, which the Goldman analysts said could prove to be "a turning point" in the bank's battle to corral elevated price growth. However, activity data has also shown that demand growth ran above potential in the first half of 2023, while financial conditions eased.

Taking these trends into account, the Goldman analysts said they believe the Fed will ultimately choose to "remain more hawkish than market pricing."

"This reflects both our lower probability of recession and our expectations that the threshold for rate cuts will be fairly high and that cuts will be gradual," they noted.

They added that they expect the Fed to begin slashing rates by 25 basis points per quarter starting from the second quarter of 2024, eventually bringing the closely-watched down to between 3% to 3.25%.

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