Goldman Sachs Analysts Cut Expectation of Federal Reserve Interest Rate Cuts
Goldman Sachs analysts have revised their forecast for the Federal Reserve’s interest rate cuts, now expecting only two rate cuts in 2025, down from their previous forecast of three cuts. The change in expectations comes as the analysts have become increasingly concerned about sticky inflation and a strong labor market, which they believe will reduce the need for further rate cuts.
According to the analysts, the Fed is likely to cut rates twice in 2025, in June and December, with a potential additional cut in 2026, bringing the terminal rate to 3.5% to 3.75%, down from the current range of 4.25% to 4.5%.
The shift in expectations comes as new data for December has shown stronger-than-expected growth, leading to increased bets that the Fed will have little impetus to cut rates. The analysts still believe their base forecast is more dovish than market pricing, but they have little confidence in the timing of the cuts due to the expected robust economic data.
The bank also expressed uncertainty over how the Fed will navigate an increase in trade tariffs under incoming President Donald Trump, who will take office next week. Trump has promised to impose steep import tariffs on several major U.S. trading partners, including China. American importers are expected to pay the tariffs, resulting in an increase in domestic goods and services reliant on imports. However, the analysts do not expect Trump’s fiscal and immigration policies to have a perceptible impact on inflation, and they do not believe tariffs will raise inflation enough to warrant interest rate hikes or unsettle Wall Street.