According to Goldman Sachs, the Fed may begin interest rate cuts earlier than expected. Agent economists predict that cuts could begin in September as inflation pressures ease and tariff effects fade.
This forecast means that the previous December forecast has been carried forward to three months.
The Goldman Sachs Research team also revised estimates for the final level of the Fed’s policy rate. Terminal rate forecasts, which previously ranged from 3.50-3.75%, have fallen to the 3.00-3.25% range. This revision is driven by expectations that the impact of customs policy on prices is more limited than expected and that there will be a stronger impact of other dismissal factors.
David Merricle, chief US economist at Goldman Sachs, said the chances of interest rate cuts in September are “a little over 50%.” Mericle and his team are looking for a 25 basis points rate cut in September, October, December, and March and June 2025. However, no cuts are expected in July.
The report also noted signs of a slowdown in the labor market. The labor market appears healthy, but it has been pointed out that finding jobs is becoming more difficult. Furthermore, seasonal impacts and changes in immigration policies pose negative risks to employment data in the near future.
In terms of inflation, the positive signal stands out. According to Goldman Sachs, the impact of tariffs imposed on China on consumer prices was lower than expected. Additionally, inflation expectations in Michigan and conference committee investigations have declined. The slowdown in wages increased, and weak travel demand was one of the additional layoffs.
Goldman Sachs said the revision of terminal interest rates is not due to changes in the economy’s long-term natural rates. “The lack of clarity on true neutral interest rates could allow device rates to remain flexible in response to policymakers’ perceptions,” Mericle said.
The fact that there were no major changes to the FOMC dot plot chart in June and that Fed Jerome Powell’s term ends in 2026 indicate that a new approach to monetary policy could be adopted in the future.
*This is not investment advice.
