Goldman Sachs CEO Doubts a 50bps Fed Rate Cut Despite Weaker Job Data

TLDR

• Goldman Sachs CEO David Solomon anticipates a 25bps Fed rate cut in September.
• Solomon dismisses the likelihood of a 50bps rate cut, despite weak job data.
• Market data shows a 92% chance of a 25bps rate cut at the upcoming Fed meeting.
• A smaller rate cut is expected to support risk assets, including crypto markets.

Goldman Sachs CEO David Solomon has cast doubt on the possibility of the Federal Reserve implementing a 50-basis-point rate cut in September. In a recent interview with CNBC, Solomon expressed his belief that the Fed would likely move cautiously, reducing rates by a smaller 25 basis points. This follows recent market speculation after weaker-than-expected job data fueled expectations for a larger cut.

Solomon pointed out that the Fed is more likely to take a measured approach. “I don’t think that [50bps] is probably on the cards,” he said, referring to the potential for a 50-basis-point reduction. Instead, he anticipates a more modest rate reduction in line with market expectations.

Job Market Signals and Inflation Concerns

Solomon’s remarks come amid growing concerns over a softening labor market in the U.S. Despite strong job numbers overall, recent payroll revisions suggest a slower pace of job growth.

The Labor Department’s revised data showed that the economy had added 911,000 fewer jobs than previously reported, highlighting a potential slowdown.

“The job market is showing some softening,” Solomon noted, referencing the labor market’s current state. However, he also emphasized that unemployment remains below 4%, indicating continued economic resilience. Despite this, Solomon acknowledged that economic conditions may warrant some adjustments by the Fed in the near future.

Fed Rate Cut Outlook: Market Expectations

The CME FedWatch Tool, which tracks market expectations for Fed rate movements, currently indicates a 92% probability of a 25bps cut during the September 17 Federal Reserve meeting. In contrast, the chance of a 50bps cut stands at just 7.8%.

These expectations align with Solomon’s comments. While a more aggressive rate cut is unlikely, some analysts continue to push for the possibility, citing weak job data and the overall economic environment.

Some institutions, like Standard Chartered, have even raised their predictions, suggesting a 50bps cut could be on the table.

What a Rate Cut Means for Risk Assets

The September Fed meeting is being closely watched, especially by risk assets like stocks and cryptocurrencies. Lower interest rates often make riskier assets more attractive, as they offer better returns compared to traditional investments like bonds. A rate cut could provide a boost to equities and cryptocurrencies, as investors seek higher returns.

If the Fed moves forward with a 25bps reduction, this could create a favorable environment for cryptocurrencies. Crypto traders are particularly optimistic, with some predicting that such a move could drive digital asset prices higher. However, if the Fed opts for a more significant reduction, some analysts believe it may signal deeper concerns about the broader economy.

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