Goldman Sachs Updates Fed Interest Rate Cut Forecast

Goldman Sachs has revised its forecast for Fed interest rate cuts, now anticipating they may begin as early as September instead of December. The decision is influenced by the limited inflationary effects of customs duties.

The economic team, led by Chief Economist Jan Hatzius, stated, “While this is still unclear, we think the probability of a September rate cut is above 50%.” This outlook could be supported by weaker tariffs, larger disinflationary buffers, and concerns about a softening labor market or volatility.

The bank forecasts three rate cuts of 25 basis points each, projected for the meetings in September, October, and December, and has lowered its expectations for the final interest rate to a range of 3-3.25% from the previous 3.5-3.75%.

Analysts commented that if the Fed’s motive for cutting rates is precautionary, consecutive cuts could be beneficial, similar to actions taken in 2019. However, a cut is not anticipated in July unless upcoming employment data significantly underperforms expectations.

Goldman noted that while the labor market remains “healthy,” job hunting has become more challenging. Seasonal factors and immigration policy changes could also negatively impact employment data in the near term.

This is not investment advice.