Goldman Sachs has sharply revised its forecast for U.S. Federal Reserve policy in 2025, now projecting three interest rate cuts—each of 25 basis points—to come in September, October, and December.
The Wall Street investment bank previously anticipated just one cut this year but says recent developments in the labor market and inflation trajectory warrant a more aggressive shift.
“We had previously thought that the peak summer tariff effects on monthly inflation and the recent large increases in some measures of household inflation expectations would make it overly awkward and controversial to cut sooner,” Goldman analysts wrote in a note published Monday.
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“But early evidence suggests that the tariff effects look a bit smaller than we expected,” they added, noting that disinflationary forces have been stronger than expected across several sectors.
Tariff Impact Weaker Than Feared
The revision comes just months after the Trump administration’s move in April to implement “reciprocal tariffs” on major trading partners, a policy shift that initially prompted fears of rising inflation. Although the tariff hikes were later paused, economists had warned that pre-emptive consumer spending to beat the tariffs might spur volatility in price levels. However, May’s consumer spending data came in weaker than expected, and monthly inflation only increased moderately, suggesting that tariff-related shocks have not materialized to the extent previously feared.
This data, combined with a decline in household demand for durable goods and signs of slackening job market conditions, has emboldened forecasts for a more accommodative monetary stance. Goldman now sees the Federal Reserve’s terminal rate at 3.00%–3.25% by the end of 2026, significantly lower than its previous projection of 3.50%–3.75%.
Broad Street Consensus Builds Around September Start
Goldman is not alone in its revised outlook. Citigroup, Wells Fargo, and UBS Global Research all expect rate cuts totaling 75 to 100 basis points in 2025. Like Goldman, these institutions forecast the first cut to begin in September, marking a growing consensus across Wall Street that the Fed is likely to pivot in the fall. UBS, notably, projects a full percentage point (100bps) of rate cuts by year’s end.
However, the Federal Reserve has remained publicly cautious. Fed Chair Jerome Powell recently testified before Congress, reiterating the central bank’s stance that more data is needed before initiating any rate reductions. He emphasized that the Fed remains focused on returning inflation to its 2% target and noted that policy easing is not imminent.
Echoing this view, Atlanta Fed President Raphael Bostic said he still expects just one cut in 2025, citing “robust underlying strength” in employment and consumer activity.
Eyes on the June Jobs Report
The next key data point will arrive on Thursday, when the U.S. Labor Department releases the June jobs report. Analysts are watching closely for signs that labor market weakness is deepening. Slowing job creation or rising unemployment could tip the balance decisively toward earlier rate cuts.
Goldman believes the labor market is already showing enough signs of slack to justify action.
“We’ve seen softness in wage growth, declines in job openings, and reduced employer demand across multiple sectors,” the firm noted. “These are not recessionary signals, but they do warrant policy easing.”
Political Uncertainties
Beyond the economic indicators, political factors may also shape the Fed’s calculus. With President Donald Trump pledging further tariff expansions, markets remain on edge about potential inflationary fallout from a second wave of trade restrictions. At the same time, Trump has openly criticized Fed policy in recent months, and there are growing expectations that he could appoint a more dovish Fed Chair when Jerome Powell’s term ends in 2026.
That uncertainty is prompting traders to price in even more aggressive easing in 2026, with some bond markets now expecting up to five rate cuts over the next 18 months. If realized, that would represent the most substantial rate reduction cycle since the Fed slashed rates during the early stages of the COVID-19 pandemic in 2020.
The implications of a 75bps cut cycle are significant. For borrowers, lower rates would mean cheaper loans and mortgages. For investors, the pivot could breathe fresh life into equity markets, especially rate-sensitive sectors like technology and real estate. Corporate debt issuance is also expected to rise as companies move to refinance at more favorable rates.
But a pivot could also trigger broader concerns about economic resilience. Some economists argue that rate cuts at this stage could be premature and risk stoking new asset bubbles—particularly in real estate and crypto markets, which have rebounded strongly in recent months on expectations of lower borrowing costs.
However, Goldman Sachs’s revised outlook for three rate cuts in 2025 signals a growing belief on Wall Street that the U.S. economy is cooling fast enough to justify monetary easing—despite the Fed’s cautious rhetoric. While tariff-induced inflation risks appear to be subsiding, the full picture will become clearer with June’s labor market data.