Goldman Sachs has revised its forecast for Federal Reserve rate reductions this year, trimming its expectation down to two cuts from an initially projected three. This change arises from heightened concerns over persistent inflation and a resilient employment market.
The investment bank now anticipates two rate reductions in June and December of 2025, with another cut in 2026, which would ultimately lower the Fed’s terminal rate to a range of 3.5% to 3.75%. This follows from current levels of 4.25% to 4.5% and comes on the heels of stronger-than-expected December nonfarm payrolls data. Such robust figures have dampened expectations for immediate rate cuts, prompting volatile reactions on Wall Street.
Prior to the previous Fed’s meeting in December last year, Goldman anticipated the Federal Reserve to reduce rates in 2025 during the months of March, June, and September, with each cut estimated at 25 basis points.
Amid ongoing uncertainties about economic metrics, Goldman Sachs notes that their outlook, while slightly more dovish than broader market expectations, is tentatively set. Analysts highlight difficulties in pinpointing cut timings due to anticipated strong U.S. economic indicators that make reductions probable but not critical.
Moreover, the investment bank remains cautious about how the Federal Reserve will manage trade tariff changes under President-elect Donald Trump. Trump’s proposals for imposing significant import tariffs, particularly targeting China, could elevate the cost of domestic goods tied to imports. However, Goldman Sachs analysts argue that these tariffs are unlikely to significantly impact inflation levels to the extent that would necessitate interest rate hikes or disrupt financial markets.
