(Bloomberg) -- Goldman Sachs pulled forward its forecast for Federal Reserve interest rate cuts, and is now calling for the central bank to resume reductions in September rather than December, as the inflationary effects of tariffs “look a bit smaller” than expected.
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“While it is far from clear, we think the odds of a cut in September are somewhat above 50% because we see several routes to get there—underwhelming tariff effects, larger disinflationary offsets, and either genuine labor market softness or a scare from month-to-month volatility,” wrote the bank’s economics team, led by chief economist, Jan Hatzius. They add, “we suspect that the Fed leadership shares our view that tariffs will only have a one-time price level effect”
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Goldman expects three quarter-point cuts this year at the Fed’s meetings in September, October and December, and also reduced its “terminal rate forecast to 3-3.25%,” from a prior call of 3.5%-3.75%
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“If there is any insurance motive for cutting, it would be most natural to cut at consecutive meetings, as in 2019,” and Goldman analysts “do not expect a cut in July, barring much weaker-than-expected employment data this week”
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Noting a still “healthy” labor market, Goldman said “it has become hard to find a job, and both residual seasonality and immigration policy changes pose near-term downside risk to payrolls”
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