Early Rate Cuts Expected by Fed According to Goldman Sachs

Goldman Sachs predicts the Federal Reserve may cut interest rates sooner than previously expected, potentially starting in September as inflation pressures ease and tariff impacts diminish.

This new forecast brings the anticipated rate cut forward by three months from the previous expectation of December.

The Goldman Sachs Research Team has also revised its terminal policy rate estimate. The previous range of 3.50-3.75% has now been lowered to 3.00-3.25%. This change reflects the expectation that tariff impacts on pricing will be limited and that other disinflationary factors will be more influential.

Chief U.S. Economist David Mericle indicated that the likelihood of a rate cut in September is slightly over 50%. The team expects cuts of 25 basis points in September, October, December 2025, and also in March and June 2025, although a cut in July is not anticipated.

The report also highlights emerging signs of a slowdown in the labor market. While the labor market remains healthy, job searching has become more challenging, with seasonal changes and new immigration policies posing risks to employment data.

On the inflation front, positive developments are noted. Goldman Sachs reports that the consumer price effects of tariffs on China have been less severe than expected. Additionally, inflation expectations in surveys show a decline. Factors such as a slowdown in wage growth and reduced travel demand contribute to disinflationary dynamics.

The revision of the terminal interest rate reflects adjustments but does not indicate a shift in the long-term natural interest rate of the economy. As Mericle stated, uncertainty about the true neutral interest rate may impact how flexible the terminal rate becomes, dependent on the views of policymakers.

The lack of significant changes in the FOMC dot plot chart from June, combined with Fed Chair Jerome Powell’s term ending in 2026, suggests that new monetary policy approaches may be forthcoming.

This article does not constitute investment advice.