A recent report released by Goldman Sachs indicates that due to economic downturn pressure from Trump's tariff policies, the Federal Reserve may cut interest rates three times this year. Jan Hatzius, Goldman Sachs' chief economist, and his team state that the Federal Reserve is expected to lower rates in July, September, and November to counteract risks associated with rising inflation and slowing economic growth.
This marks a revision from Goldman Sachs' earlier forecast, which initially anticipated only two rate cuts by the Federal Reserve before 2025 and another in 2026. However, in the latest report, Goldman Sachs has upgraded its expectation of the tariff impact for the second time in less than a month, projecting an increase in the average US tariff rate by 15 percentage points in 2025.
Goldman Sachs points out that higher tariffs will directly drive up consumer prices, and it is expected that by the end of 2025, the year-on-year increase in the core personal consumption expenditures (PCE) price index will reach 3.5%. Meanwhile, the tariff policy is suppressing economic growth, prompting economists to lower their forecast for GDP year-on-year growth in the fourth quarter of 2025 to 1%, down 0.5 percentage points from the previous forecast.
The job market is similarly affected. Goldman Sachs has raised its forecast for the US unemployment rate by the end of 2025 from 4.2% to 4.5%. The report states that although the Federal Reserve currently emphasizes controlling inflation, if the unemployment rate continues to rise, its policy focus may shift towards economic stimulus.
Goldman Sachs economists wrote in the report: "While the Federal Reserve leadership has so far downplayed the upside risks to inflation expectations, we believe that if there is a significant increase in unemployment, it will provide a clearer rationale for the Federal Reserve to adjust the interest rate path."
This forecast highlights the broad impact of tariff policies on the US macroeconomy and offers the market a new viewpoint on the potential shift in Federal Reserve monetary policy. The market is closely monitoring economic data and policy dynamics in the coming months to determine whether the Federal Reserve will initiate a new rate cut cycle sooner than Goldman Sachs predicts.
