What to bet on before the Federal Reserve cuts interest rates? Goldman Sachs' chief strategist recommends: five-year U.S. Treasuries for both offense and defense
Goldman Sachs chief strategist Josh Schiffrin recommends five-year U.S. Treasuries as the preferred trading instrument before a potential rate cut by the Federal Reserve. He believes that the bond is attractive in the yield range of 3.75% to 4% and can provide protection during heightened market risks. Schiffrin predicts a very high probability of a 25 basis point rate cut in September based on the judgment that the Federal Reserve will shift to an easing policy and the cooling of the labor market. A Reuters survey shows that 61% of economists expect the Federal Reserve to cut rates at the meeting on September 17
According to the Zhitong Finance APP, Josh Schiffrin, Chief Strategist for Global Banking and Markets at Goldman Sachs, stated that the five-year U.S. Treasury bond is his "preferred trading instrument" ahead of a potential interest rate cut by the U.S. next month.
In the latest episode of Goldman Sachs' "Market Insights" podcast, when Mike Washington, Managing Director of Equity Sales Trading, asked about the "most favored trades across asset classes," Schiffrin clearly expressed his preference for short-term government bonds.
"I find five-year U.S. Treasury bonds with yields in the range of 3.75% to 4% attractive," Schiffrin analyzed, "and these bonds provide good protective characteristics during times of increased market risk."
Schiffrin's preference for short-term government bonds is primarily based on two judgments: first, the expectation that the Federal Reserve will shift to an easing policy next month, and second, the continued cooling of the labor market. Data shows that the U.S. added only 73,000 jobs in July, far below the expected 106,000. He predicts, "The probability of a 25 basis point rate cut in September is extremely high, and the likelihood of keeping rates unchanged is even lower than a one-time 50 basis point cut."
The latest Reuters survey shows that among 110 economists surveyed, 61% expect the Federal Reserve to cut rates by 25 basis points at the meeting on September 17, bringing the federal funds rate to a range of 4%-4.25%. This would be the first rate cut of the year, while the majority of the remaining respondents believe rates will remain unchanged.
It is worth noting that despite President Trump's continued pressure on Federal Reserve Chairman Powell to cut rates for months, the last five monetary policy meetings, including the one at the end of July, have all kept rates unchanged. Powell previously emphasized that the uncertainty of Trump's tariff policy, the inflation rate consistently above the 2% target, and the low unemployment rate are all important considerations for delaying a rate cut
