The stock market has largely ignored the central bank's hawkish actions this year, rallying due to investor excitement around artificial intelligence. After a dismal 2022 where stock prices fell as the Fed began to hike borrowing costs, the S&P 500 has jumped nearly 18% year-to-date, driven by the rise of AI, cooling inflation, and dwindling recession odds.
Key takeaways:
- Goldman Sachs economists predict that the Federal Reserve will not start cutting interest rates until at least mid-2024, introducing steady quarter-point reductions from that point onward.
- The Fed's aggressive monetary-tightening campaign since the 1980s has seen interest rates rise from near zero to over 5% to combat inflation.
- Goldman Sachs believes the rate cut will come later than the market consensus, as the Fed may not rush to stimulate an already-strong economy.
- The stock market has largely ignored the central bank's hawkish actions, with the S&P 500 jumping nearly 18% year-to-date, driven by the rise of AI, cooling inflation, and dwindling recession odds.