In a Sunday note to clients, Goldman Sachs is predicting that the Federal Reserve will begin cutting interest rates before the end of the first half of next year, and that will mark the beginning of a gradual, quarterly series of reductions, bringing interest rates back to more normal levels.

In the note, Goldman economists including Jan Hatzius and David Mericle wrote, “The cuts in our forecast are driven by this desire to normalize the funds rate from a restrictive level once inflation is closer to target.”

The Goldman team sees the first rate cuts being implemented in the second quarter of next year. It is expected the next Fed meeting will see no change to rates, and the November meeting will conclude “that the core inflation trend has slowed enough to make a final hike unnecessary.”

Goldman’s note read, “Normalization is not a particularly urgent motivation for cutting, and for that reason we also see a significant risk that the FOMC will instead hold steady. We are penciling in 25 basis points of cuts per quarter but are uncertain about the pace.”

Data released last week showed that headline inflation in the US rose slower that expected, at a rate of 3.2%, while the core figure, with volatile energy and food readings removed, ran at a 4.7% yearly pace.

In March of 2022, Fed policymakers began hiking rates toward a target for the benchmark rate of 5.25% to 5.5%.

The team wrote in their note that once rates begin declining, “We expect the funds rate to eventually stabilize at 3-3.25%.”