“However, we think the hurdle for such cuts is likely to be higher than widely believed,” Goldman economists wrote in a research note published on Sunday.A number of primary dealers, or the 24 top Wall Street firms that do business directly with the Fed, anticipate the Fed would lower key borrowing costs beginning this summer.
Goldman economists said the three-quarter point in rate cuts in 1995-1996 and 1998, which some analysts point to as recent examples of pre-emptive policy easing from the Fed, were responses to data “rested at least as much on observable deterioration as on an insurance motive.” “However, the greater political scrutiny of Fed hikes now—especially with a presidential election approaching—could make this harder to do in 2020, so that overly hasty insurance cuts now might increase the risk that the funds rate gets stuck at too low a level if the economy remains resilient,” they wrote.