Goldman Sachs Revises Fed Rate Cut Projections Amid Economic Concerns

Goldman Sachs now forecasts the Federal Reserve will cut interest rates twice in 2025, compared to its earlier estimate of three cuts, citing persistent inflation and a robust labor market. The anticipated cuts are expected in June and December, with an additional reduction in 2026. This would lower the Fed's terminal rate to 3.5%-3.75% from the current 4.25%-4.5%.

The revised outlook follows stronger-than-expected December nonfarm payrolls data, which intensified speculation that the Fed may slow its pace of rate cuts. This development caused significant losses on Wall Street, reflecting investor concerns about monetary policy adjustments.

While the Fed reduced rates by 1% in 2024, it signaled a slower trajectory for cuts moving forward. Goldman Sachs adjusted its projections from four to two cuts in 2025, emphasizing challenges posed by inflationary pressures and a strong labor market. Analysts noted uncertainty about the timing of these cuts, given the strength of U.S. economic indicators.

The investment bank also highlighted potential economic disruptions under President Donald Trump’s incoming administration, particularly from proposed import tariffs targeting major trading partners like China. While these tariffs are expected to raise costs for American importers, Goldman Sachs believes the resulting inflation will be insufficient to trigger additional rate hikes or destabilize financial markets.

Despite concerns over fiscal and immigration policies, Goldman Sachs remains cautiously optimistic, maintaining a slightly more dovish stance than market expectations. The bank emphasized that upcoming economic data and trade policies will likely shape the Fed’s monetary decisions.

This outlook underscores the delicate balance the Federal Reserve must maintain as it navigates a challenging economic landscape influenced by inflation, labor market strength, and evolving trade dynamics.