Goldman Sachs Predicts Fed Rate Cuts Starting September 2025

Goldman Sachs has revised its forecast, predicting that the Federal Reserve may cut interest rates earlier than previously anticipated. The investment bank now expects the Fed to initiate rate cuts as early as September, with a total of three cuts planned for 2025. This revision comes amidst growing economic pressures and uncertainty surrounding inflation and employment data. The Fed's decision to pause rate cuts was initially attributed to the uncertainty surrounding the inflationary impact of tariffs. However, Goldman Sachs believes that the Fed will not remain sidelined indefinitely, citing the economy's inherent risks. The Fed's dual mandate of maintaining low inflation and high employment makes it challenging to balance rate hikes and cuts, a complexity exacerbated by recent tariff policies.

The firm's forecast suggests that the Fed Funds Rate could be reduced to between 3% and 3.25% by 2026, following an additional two rate cuts in that year. This projection indicates that the Fed may have more flexibility to cut rates without hitting zero, providing a buffer relative to recent years. Markets are closely monitoring upcoming Consumer Price Index (CPI) prints and wage data, with rate cut expectations tentatively pencilled in for later in 2025. The firm's revised outlook underscores the evolving economic landscape and the Fed's need to adapt its monetary policy accordingly.

According to the analyst's forecast, the terminal interest rate range for the Federal Reserve is expected to be 3.00-3.25%, previously expected to be 3.50%-3.75%. This adjustment reflects the changing economic conditions and the Fed's response to them. The weakening impact of tariffs and falling inflation are key factors contributing to this shift in the Fed's policy outlook.