Goldman Sachs Forecasts Three 25-Basis-Point Fed Rate Cuts in 2025

Goldman Sachs has revised its outlook for U.S. monetary policy, forecasting three 25-basis-point interest rate cuts by the Federal Reserve in 2025. The firm cited weakening labor market data as a key driver in this shift, noting that slower job growth has intensified the case for accommodative action [1]. According to analysts, job additions have slowed to about 30,000 per month, well below the approximately 80,000 needed for full employment [1]. The investment bank previously signaled a more cautious stance but has now adjusted its forecasts in light of evolving economic conditions [1].

Goldman Sachs anticipates additional rate cuts in 2026, maintaining that the Fed will remain responsive to signs of economic softness [1]. These projections underscore a growing consensus among market participants and analysts that the Fed is likely to prioritize easing policy in the coming months [1]. The firm warned that despite the unemployment rate remaining stable, even a mild labor market slowdown is concerning [1]. If the unemployment rate shows a more pronounced increase, it could trigger a larger 50 basis point rate cut [1].

The Fed’s recent pause in rate adjustments has been attributed to uncertainty surrounding economic data and policy developments, which have introduced volatility into financial markets. Wall Street generally expects the central bank to resume rate cuts starting in September, a shift that would mark a departure from its earlier tightening cycle [4]. The updated projections from Goldman Sachs highlight the evolving dynamics in U.S. monetary policy, with analysts emphasizing the importance of incoming economic data in shaping the Fed’s path forward [1].

Historically, the Fed has used rate cuts to respond to economic slowdowns and inflationary pressures, as seen in 2019 and 2020. In 2024, the central bank implemented three rate cuts, but has so far held rates steady in 2025. Goldman Sachs’ forecast suggests a similar pattern may emerge this year, with the central bank potentially moving to stimulate growth amid signs of deceleration in the labor market [7].

Despite some fluctuations in inflation data—such as a recent rise in wholesale inflation—market sentiment remains cautiously optimistic about the prospect of lower borrowing costs. The U.S. dollar has seen some pressure from the rising expectations of rate cuts, which has also influenced performance in bond and foreign exchange markets [8]. Money markets now price in a 93.5% probability of a rate cut in the near term, according to LSEG data [5].

Source: [1] Slowing U.S. job growth strengthens case for Fed rate cuts, ... (https://www.investing.com/news/economy-news/slowing-us-job-growth-strengthens-case-for-fed-rate-cuts-goldman-sachs-says-4196953)

[4] Fed Chair Jerome Powell may seriously disappoint Wall ... (https://www.aol.com/finance/fed-chair-jerome-powell-may-204420246.html)

[5] Week Ahead for FX, Bonds: Fed's Powell Comments at ... (https://www.morningstar.com/news/dow-jones/20250818920/week-ahead-for-fx-bonds-feds-powell-comments-at-jackson-hole-in-focus)

[7] Interest Rates Are About to Do Something They Haven't ... (https://www.aol.com/interest-rates-something-havent-done-084800560.html)

[8] Inflation Data Sends Markets To New Highs (https://talkmarkets.com/content/global-markets/inflation-data-sends-markets-to-new-highs?post=515920)