Goldman Sachs Brings Forward Expected Fed Rate Cut
Goldman Sachs recently released a report adjusting its forecast for the Federal Reserve's rate cut, moving the expected date from December to September this year. The report predicts the Fed will cut rates by 25 basis points in each of its meetings in September, October, and December. Goldman also lowered its "final interest rate forecast" from 3.5%-3.75% to 3%-3.25%, indicating a more aggressive expectation of a shift in U.S. monetary policy.
In the report, Goldman's economic team noted that the inflation shock caused by tariffs "seems smaller than expected." Combined with anti-inflationary factors, a weakened labor market, and fluctuations in monthly economic data, these factors could prompt the Fed to act sooner. Goldman estimates the probability of a rate cut in September to be slightly above 50% and suggests that the Fed's leadership may also view tariffs as causing a one-time price shock rather than long-term inflationary pressure.
"Consecutive Rate Cuts" Become Goldman's Base Case
Goldman economists stated, "If there is any motive for insurance rate cuts, then three consecutive rate cuts are the most natural choice, just like in 2019." Goldman expects that the Fed will not cut rates in July unless the upcoming employment data is far below expectations.
The firm believes the Fed is likely to swiftly take consecutive rate cut actions when signs of weakness appear in economic data, rather than waiting for further market deterioration before initiating a rate cut cycle.
Healthy Labor Market Masks Risks
Goldman notes in the report that the U.S. labor market appears healthy on the surface, but there are warning signs. "It's becoming increasingly difficult to find jobs," partly due to seasonal factors and changes in immigration policy, leading to short-term downside risks in employment growth.
Despite strong overall employment data, underlying signs of weakness are accumulating, providing a basis for the Fed to adjust monetary policy by September.
Market Anticipation of Fed Rate Cuts Intensifies
As Goldman brought forward its rate cut expectations, the market's anticipation for Fed rate cuts is heating up. At the beginning of this month, investors believed there was almost no chance of a July rate cut, but the market now estimates a 20% probability for July and considers a September rate cut almost a consensus.
Analysts believe that under the conditions of mild tariff shocks, easing inflation, and signs of weakness in the labor market, the Fed's initiation of rate cuts is not only a preventive measure but also intended to prevent further economic slowdown.
Inflation and Policy Dynamics Propel Monetary Policy Shift
Goldman emphasizes that the inflation pressure facing the U.S. may be less than expected, and if economic data weakens further, the Fed may be compelled to accelerate its rate-cutting pace. The market generally believes that if the Fed begins a rate cut cycle in September, it will help alleviate the pressures of a strengthening dollar on exports and manufacturing while stimulating a moderate recovery in the economy post-high interest rates.
Goldman's forecast aligns with recent views from institutions like Bank of America and JPMorgan, providing clearer interest rate path expectations for the market. Investors are closely watching the soon-to-be-released non-farm employment data and inflation indicators to determine if the rate cuts will proceed as expected.
