2023-12-04 20:21:43
Goldman Sachs: The market’s forecasts for the Fed’s interest rate cuts are overdone and it is recommended to use options to make profits
Goldman Sachs said financial markets are overly optimistic about how much the Federal Reserve will cut interest rates next year, giving options traders an opportunity to profit from going against them. Strategists such as Praveen Korapaty pointed out that the market expects the Federal Reserve to cut interest rates by 125 basis points in the next 12 months, including a 50 basis point cut by the end of June. This is much more aggressive than Goldman Sachs’s own forecast. The bank believes that there will only be one interest rate cut in 2024, with a range of 25 basis points. Goldman Sachs strategists recommend selling SOFR 95.25 call options expiring in June 2024 to short bets on early interest rate cuts. SOFR options are tied to the Secured Overnight Financing Rate, which closely tracks market expectations for the path of Fed policy. The option expires on June 14, two days after the central bank’s June policy statement.
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