Goldman Sachs Now Expects Earlier and Deeper Fed Rate Cuts as Tariff Impact Appears Limited
Goldman Sachs has brought forward its forecast for the first Federal Reserve rate cut to September, moving it up from December, as the inflationary effects of tariffs appear to be modest and largely one-off. This shift, announced Monday, reflects a growing view that the central bank has more room—and more reason—to begin easing sooner and more aggressively.
Goldman now expects 25 basis point cuts in September, October, and December 2025, followed by additional reductions in March and June 2026. The firm also revised its terminal rate forecast down to a range of 3.00% to 3.25%, from the previous projection of 3.5% to 3.75%. The probability of a September cut is now seen as slightly above 50%.
Several factors could drive the Fed toward a September move, Goldman noted—including weaker-than-expected tariff impacts, stronger-than-expected disinflationary forces, and signs of labor market softening or volatility.
“Preliminary evidence shows the inflation effects of tariffs may be smaller than we had anticipated, while other disinflationary trends are gaining momentum,” the economists said. They also believe Fed officials likely share the view that tariffs will result in a one-time rise in prices, rather than ongoing inflation pressure.
Supporting this outlook are cooling wage growth, moderating rent inflation, and sluggish travel demand, all of which are reinforcing the broader disinflation trend.
While inflation expectations briefly spiked, they have since edged lower. Goldman also noted that technical factors and political bias may have distorted recent inflation surveys, further reducing their reliability.
On the jobs front, while the labor market remains relatively solid, early signs of strain are emerging. According to Goldman, it’s “becoming harder to find work,” and changes in seasonal patterns and immigration policy could soon weigh on job growth.
Should Friday’s nonfarm payrolls report show a sharp slowdown, a rate cut as early as July is not out of the question—though Goldman still considers that unlikely unless the data significantly underperforms.
Overall, the bank now expects a deeper and faster rate-cutting cycle, citing a softer inflation backdrop, a more cautious Fed, and reduced need for higher rates to counterbalance fiscal stimulus or loose financial conditions.
With tariffs proving less disruptive than feared and disinflationary pressures strengthening, Goldman sees a clear path for the Fed to begin easing soon—perhaps more quickly and decisively than markets had previously anticipated.
