Goldman Sachs Adjusts Rate Cut Expectations

Goldman Sachs analysts have revised their outlook for Federal Reserve interest rate cuts, expecting two cuts this year instead of three.

Rate Cut Forecast

The bank anticipates rate cuts in June and December 2025, followed by another cut in 2026. This would lower the Fed’s terminal rate to 3.5% to 3.75%, down from the current 4.25% to 4.5%.

Influencing Factors

This shift follows stronger-than-expected nonfarm payrolls data for December, which led to speculation that the Fed will have less motivation to continue cutting rates. Additionally, Wall Street faced significant losses following this news.

The Fed had previously planned to reduce rates by 1% through 2024 but has now indicated a slower pace of cuts this year. The outlook for 2025 has diminished from four projected cuts to two due to concerns over persistent inflation and a robust labor market.

Economic Conditions

Goldman Sachs acknowledged that while their rate predictions are somewhat more dovish than current market expectations, confidence in the timing of cuts remains cautious due to anticipated strong U.S. economic data.

Tariff Concerns

Uncertainties also loom regarding how the Federal Reserve will address increases in trade tariffs under incoming President Donald Trump, who plans to impose steep import tariffs on various trading partners, particularly China. Trump’s policies are not expected to significantly influence inflation levels or prompt interest rate hikes, as the burden of tariffs will largely fall on American importers, which may ultimately increase domestic goods and services reliant on imports.