Goldman expects 75 bps of Fed rate cuts by June

LONDON (Reuters) – Goldman Sachs (NYSE:) expects the coronavirus to drive the Federal Reserve to cut U.S. interest rates by 75 basis points by June it said on Friday, implying as many as three cuts starting at its next meeting in March.

Traders are pricing in a 72% chance of a quarter-point rate cut at the Fed’s March meeting, according to CME Group’s FedWatch. The central bank’s next policy-setting meeting is March 17-18. It then has one April 28-29 followed by another June 9-10.

“Although moderate Fed rate cuts are unlikely to be very powerful, the committee will probably be reluctant to disappoint market expectations for substantial rate cuts for fear of tightening financial conditions further,” Goldman Sachs said in a note.

The bank expects full-year global GDP growth of about 2% despite a short contraction during the first half of the year.

Global stocks have slumped 13% this week, in their worst run since the 2008 financial crisis, as coronavirus cases surged outside China.

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