Goldman Sachs Chief Economist Explains Whether He Expects a Rate Cut from the Fed

Goldman Sachs’ Chief U.S. Economist David Mericle recently joined Bloomberg’s Closing Bell Overtime to discuss the economy, potential rate cuts and more.

Mericle’s comments came after the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) index, rose 2.5% from a year ago in June, in line with estimates. That prompted speculation about whether signs of slowing inflation could prompt the Fed to accelerate its rate-cutting schedule.

Asked about the possibility of a September rate cut, Mericle said he was sympathetic to the idea but skeptical about its likelihood. He noted that the Fed would make a statement at its next meeting that would suggest a rate cut was imminent, but that this was not definitively planned for the September meeting.

Mericle believes the Fed will wait until July inflation data is released. If the data is acceptable, he expects the Fed to announce a rate cut in September.

Despite the ups and downs in inflation data this year, Mericle finds the inflation strategy convincing, noting that the labor market has rebalanced and inflation expectations normalized late last year.

Mericle also touched on the Fed’s dual mandate and the recent shift in focus toward the Fed due to softer labor market data. Describing the labor market data as mixed rather than weak, Mericle pointed out that GDP grew by 2.8% last quarter and that recent payrolls were above 200,000.

Looking ahead, Mericle predicts that about 150,000 jobs will be needed per month to stabilize the unemployment rate. He noted that the signals are mixed and that the upcoming jobs report will likely get more attention than usual because of the upward trend in the unemployment rate.

*This is not investment advice.