Goldman Sachs now expects two Fed rate cuts this year, compared to three cuts from Investing.com
Investing.com– Goldman Sachs analysts said they now expect the Federal Reserve to cut interest rates twice this year, down from their previous forecast of three cuts, amid heightened concerns about runaway inflation and the strength of the labor market.
GS expects two interest rate cuts in 2025 – in June and December, and one additional cut in 2026, bringing the Fed’s terminal rate to 3.5% to 3.75%, from current levels of 4.25% to 4.5%.
The investment bank’s change in expectations came on the heels of stronger-than-expected December data, prompting an increase in bets that the Fed will have no immediate incentive to continue cutting interest rates. The reading also caused heavy losses on Wall Street.
Fed until 2024, but warned of a much slower pace of cuts this year. The central bank effectively cut its outlook for rate cuts to a projected two from four in 2025, citing concerns about sticky inflation and a strong labor market.
GS analysts said that while their baseline forecast for rates remained slightly worse than market prices, it was difficult to have “a lot of confidence in the timing of cuts” due to expectations of robust US economic data, making cuts reasonable but not critical .
The investment bank also said it was uncertain how the Fed would manage the increase in trade tariffs under President-elect Donald Trump, who takes office next week.
Trump has promised to impose high import tariffs on several of America’s major trading partners, particularly China. But US importers are expected to pay the tariffs, heralding an increase in domestic goods and services that depend on imports.
Still, GS analysts said they do not expect Trump’s fiscal and immigration policies to have a noticeable impact on inflation, and that the tariffs are unlikely to raise inflation enough to justify raising interest rates or upset Wall Street.
