Goldman Sachs now sees three consecutive Fed fee cuts this yr

Economists at Goldman Sachs now see the Fed cutting rates by 25 basis points at all three remaining meetings this year. Previously they forecast two cuts.

“Today’s report indicates that the softening in labor market conditions has now gone beyond the amount that was welcome,” Goldman writes.

Additionally, economists there see a likelihood of a 50 basis point cut in September if the August jobs report is weak.

From the note:

“Nonfarm payrolls rose 114k in July, below consensus expectations. The industry composition was also soft, as the healthcare sector accounted for over half of the job gains in July and the payrolls diffusion index fell to its lowest level since May 2016. The household survey was also soft, with the unemployment rate increasing 0.2pp to 4.3%. The BLS noted that Hurricane Beryl “had no discernible effect on the national employment and unemployment data for July.” That being said, the number of workers not at work because of weather in the household survey increased 280k (SA by GS), and the number of unemployed workers on temporary layoff increased 249k, accounting for 70% of the increase in the overall number of unemployed workers this month. Our estimate of the underlying pace of job growth based on the payroll and household surveys now stands at 146k after adjusting for the undercounting of immigration in the official statistics. Average hourly earnings increased by 0.2% month over month in July, below expectations. Our estimate of the underlying pace of average hourly earnings growth stands at +3.9%. Today’s report indicates that the softening in labor market conditions has now gone beyond the amount that was welcome. As a result, we now expect an initial string of consecutive 25bp rate cuts in September, November, and December (vs. our previous forecast of cuts every other meeting). We think the slowdown in job growth in the July report likely overstates the decline in the underlying trend, but if the August employment report is also weak and confirms the slowdown in job growth, then a 50bp cut would become likely at the September meeting.”