Goldman Sachs Now Sees The Next Fed Rate Cut Coming Months Earlier. A Federal Reserve interest-rate cut moves closer as Goldman Sachs revised its forecast on July 1, 2025. The bank expects the first rate cut in September instead of December.
Jan Hatzius and his team at Goldman Sachs released this new projection after seeing changes in economic trends and public policy. This shift follows a drop in the dollar index to its lowest level in three years and a decrease in the two-year Treasury yield to 3.709 percent, signaling strong market hopes for lower rates soon.
Key reasons include declining inflation expectations, a weakening labor market, and fewer long-term impacts from President Trump’s tariff strategy. Goldman’s latest view predicts three quarter-point cuts by year-end with more reductions possible next year if conditions stay gloomy.
President Trump’s recent call for rates as low as one percent puts extra pressure on Fed Chair Jerome Powell to act boldly. With economic uncertainty rising, many voices now weigh both risks and opportunities tied to these decisions.
These changes may affect households, financial markets, and global trade flows alike. Experts have different opinions about what lies ahead for jobs, prices, and growth.
This story explores why Goldman Sachs changed course so quickly and what it could mean for everyone who watches or feels shifts in America’s economy.
Key Takeaways
- Goldman Sachs moved its forecast for the next Federal Reserve rate cut from December to September 2024.
- Experts at Goldman Sachs now predict three 25-basis-point cuts in September, October, and December. This would lower the Fed funds rate to between 3.50% and 3.75%.
- The main reason for this earlier timeline is weaker-than-expected inflation from tariffs linked to Trump’s trade strategy.
- Chief Economist Jan Hatzius said the drop in inflation supports faster interest rate cuts than previously thought.
- The dollar index hit a three-year low and Treasury yields dropped after news of these expectations, showing strong market reactions to policy changes.
Goldman Sachs’ Forecast for Federal Reserve Interest-rate Cut
Goldman Sachs recently adjusted its forecast for the Federal Reserve’s interest rate cut, moving the timeline from December to September. This change reflects their expectation of reduced inflationary pressures stemming from tariffs.
Revision of timeline from December to September
Goldman Sachs now expects the Federal Reserve to start cutting interest rates in September instead of December. The bank revised its economic forecast after reviewing inflation, financial markets, and recent monetary policy trends.
Experts at Goldman Sachs project three 25-basis-point rate cuts in September, October, and December. These changes push up the expected timeline for lowering the federal funds rate.
Chief economist Jan Hatzius stated,
The earlier initiation of cuts reflects faster progress on disinflation than previously anticipated.
Markets had prepared for a later move by the Fed; this shift could reshape expectations across Treasury yields and the dollar index as well as influence long-term economic growth forecasts.
Anticipation of reduced inflationary impacts from tariffs
Moving from the revised timeline, market analysts are now focusing on how tariffs may influence inflation. The primary reason for shifting the expected rate cut to September centers on an updated assessment of tariff-related risks.
Experts at Goldman Sachs estimate that the Trump tariff strategy will not trigger a major spike in consumer prices as once feared. They previously planned to wait until December before forecasting a Federal Reserve interest-rate cut, chiefly because they expected tariffs to increase monthly inflation figures.
New data and financial models suggest these tariff effects on inflation could prove far less intense or long-lasting than anticipated. As a result, economists anticipate only a one-time adjustment in consumer prices instead of prolonged upward pressure.
This improved outlook allows policymakers and investors to better gauge monetary policy moves with more confidence, especially regarding interest rates and broader financial strategy decisions throughout 2024.
Factors Influencing the Forecast
Disinflationary forces play a crucial role in shaping Goldman Sachs’ predictions. The impact of the Trump tariff strategy introduces expected one-time adjustments that may alter economic dynamics significantly.
Disinflationary forces and impact of Trump tariff strategy
Many analysts point to disinflationary forces as the main reason for shifting forecasts on Federal Reserve rate cuts. “The impact of the Trump tariff strategy is now expected to be less significant on inflation than previously feared,” said Jan Hatzius, Chief Economist at Goldman Sachs.
Supply chain improvements and stable consumer prices have eased concerns about persistent inflationary pressures from tariffs.
Economists expect only a one-time adjustment in prices due to new tariffs rather than ongoing price hikes. Market trends suggest that economic policy and trade strategy under Trump will not drive sustained increases in consumer prices.
Recent data shows steady declines in inflation expectations, supporting a September timeline for possible interest-rate cuts according to Goldman Sachs latest forecast.
Expected one-time adjustment from tariff effects
Fed leadership likely aligns with Goldman Sachs regarding a one-time adjustment from tariffs. This adjustment may ease inflationary pressures in the economy. Recent comments from some Federal Reserve officials hint at their possible support for a rate cut during the September meeting, especially if new inflation data remains manageable.
The expectation of such adjustments could significantly influence future monetary policy decisions and help stabilize financial markets.
Next, let’s explore potential rate cut scenarios based on these forecasts.
Potential Rate Cut Scenarios
Goldman Sachs envisions significant rate cuts in the near future. They project 25-basis-point reductions for September, October, and December, with further decreases expected by 2026.
Projected 25-basis-point cuts in September, October, and December
The Federal Reserve expects three 25-basis-point cuts to the federal funds rate this fall. These reductions will occur in September, October, and December. If these cuts happen, they will lower the Fed funds rate to a range between 3.50% and 3.75%.
This change signifies a shift in monetary policy aimed at addressing economic uncertainty and potentially stimulating growth during challenging times. Markets have begun reflecting these expectations through movements in the dollar index and Treasury yield.
Additional rate reductions in 2026
Goldman Sachs anticipates two more rate reductions in 2026. Each reduction will likely lower the terminal rate by 25 basis points. This adjustment would bring the new range of interest rates to between 3% and 3.25%.
Financial markets may respond positively to these cuts, as they reflect ongoing adjustments in monetary policy aimed at supporting economic growth during uncertain times.
Economic Indicators and Conditions
Declining inflation expectations raise concerns among economists. A weakening labor market also signals potential challenges for future growth.
Impact of declining inflation expectations and weakening labor market
Households currently exhibit declining inflation expectations. This trend supports the Federal Reserve’s capacity to lower interest rates. Lower rates can stimulate economic activity by encouraging borrowing and spending.
Emerging signs indicate a weakening labor market. Job growth has slowed, suggesting that fewer opportunities exist for workers. Wage stagnation may contribute to decreased consumer confidence as individuals worry about their financial stability.
The combination of these factors puts pressure on monetary policy decisions, pushing the Fed toward more accommodating measures to maintain price stability and encourage growth.
Market expectations for Fed rate cuts reflected in dollar index and Treasury yield
Market sentiment is shifting as traders anticipate upcoming Federal Reserve rate cuts. Recent movements in the dollar index and Treasury yields provide a clear signal of these changing expectations.
| Indicator | Recent Performance | Implication |
|---|---|---|
| Dollar Index (DXY) | Hit a three-year low | Traders expect the Fed to lower rates soon. A weaker dollar often signals growing anticipation of monetary easing. |
| 2-Year Treasury Yield | Fell to 3.709%, near a two-month low | Lower yields reflect reduced inflation expectations and stronger market confidence in rate cuts by the Federal Reserve. |
| Market Activity | Shifts in currency and bond pricing | Investors reallocate portfolios in response to policy forecast changes, seeking stability and growth opportunities. |
Conclusion
Goldman Sachs revised its forecast for the Federal Reserve interest-rate cuts. Analysts expect a move to September instead of December due to lower inflation from tariffs. They project three 25-basis-point cuts in the coming months, reducing rates to between 3.50% and 3.75%.
This policy shift stems from their assessment that tariff effects will have less impact than feared. Investors should closely watch these developments as they may influence financial strategies significantly.
Learning about these changes can equip readers with valuable insights into managing economic uncertainty effectively.
