Goldman Sachs Predicts Federal Reserve to Cut Interest Rates in 2025
Goldman Sachs predicts that the Federal Reserve will deliver a 25-basis-point (bps) interest rate cut in March 2025, followed by two more cuts of the same magnitude in June and September. The bank expects the terminal rate range to be 3.5-3.75%.
In addition, Goldman foresees the Fed slowing its balance sheet runoff in January 2025 and halting it entirely by the second quarter. The bank also projects above-consensus U.S. real GDP growth of 2.4% year-over-year in 2025, driven by robust real income growth and easing financial conditions.
Core personal consumption expenditures (PCE) inflation is expected to decelerate to 2.4% by the end of 2025, aided by cooling shelter inflation and easing wage pressures. Tariffs are forecasted to provide a moderate inflationary boost. The unemployment rate is projected to decline gradually, reaching 4.0% by the end of 2025.
Global growth is expected to reach 2.7% year-over-year in 2025, driven by easing financial conditions and rising disposable incomes. However, the firm highlights risks from geopolitical developments, particularly U.S. policy shifts, including higher tariffs on China and autos, lower immigration, and new tax cuts.
Goldman also expects the European Central Bank (ECB) to continue rate reductions until mid-2025, while China’s GDP growth is forecast to slow to 4.5% amid domestic challenges.