Goldman Sachs updated its Federal Reserve interest rate cut forecast to begin in September rather than December due to the potential inflationary impact of tariffs.
In a note published on Monday, the investment bank’s economic team said that the odds of a September interest rate cut are “somewhat above 50% despite the uncertainty around the projections.
The probable resumption of rate cuts will be due to underwhelming tariff effects, larger disinflationary offsets, and either genuine labor market softness or a scare from month-to-month volatility.
The bank’s economists believed that the Fed’s leadership shared its view that tariffs would only have a one-time price-level effect.
Goldman Sachs expects three quarter-point cuts in 2025 at the Fed’s meetings in September, October and December.
The terminal rate forecast was lowered to 3-3.25% from a prior call of 3.5-3.75%. The current rate ranges between 4.25% and 4.50%.
AI Summary
Comments Analysis: