Goldman Sachs has raised forecasts for the Fed's interest rate reduction. The bank stressed that the decision, which previously expected to start in December, could now begin in September, will be affected by the inflationary effect of tariffs, which appears to be “restricted more than expected.”
“This is still unknown, but we believe the chances of interest rate cuts in September will be above 50%. This could be driven by weaker tariffs, greater withdrawal cushions, and the fear of real softening on monthly volatility.”
The bank expects the Fed to cut 25 basis points three times for the remainder of the year. These cuts are expected to occur at meetings in September, October and December. We also reduced our final interest rate forecast to 3-3.25%. Previously, we predicted the range of 3.5-3.75%.
Goldman analysts said, “If the Fed has any insurance motive for interest rate cuts, the most natural option is to cut through consecutive meetings, like in 2019.” However, this could only be on the agenda if a cut was not expected in July and employment data released this week is much weaker than expected.
The bank noted that the labour market is still “healthy,” but added that “it's become more difficult to find work.” He also said seasonal impacts and changes in immigration policies could pose negative risks to employment data in the near future.
*This is not investment advice.
