Goldman Sachs now expects the Federal Reserve to initiate interest rate cuts as early as September 2025, revising its forecast from a previous December timeline as concerns over inflation and tariffs subside.
According to a note released Monday, Goldman economists believe a clearer outlook on tariffs and easing inflationary pressures open the door to a more aggressive and rapid rate-cutting cycle.
The new projections anticipate a 25 basis point reduction in September, with further cuts scheduled for October and December 2025, followed by additional easing in March and June 2026.
Goldman outlines several possible scenarios leading to a rate cut as early as September. These include muted inflationary effects from tariffs, stronger-than-expected disinflation, or a potential softening in the labor market—either driven by an actual slowdown or increased volatility in monthly job reports.
The driving factor behind this revision is emerging evidence that tariff-related inflation is proving less potent than originally feared, while broader disinflationary trends are gaining momentum.
Supporting this narrative are signs of tempering wage growth, declining new rent inflation, and subdued travel demand—all of which add fuel to the ongoing disinflation trend. After a brief spike, inflation expectations have also moderated, and Goldman points to a growing recognition that technical elements and political partisanship may have artificially skewed recent survey results.
Looking further ahead, the forecast for the terminal Fed funds rate has been revised downward to a range of 3% to 3.25%, compared to the previous 3.5% to 3.75%. This reflects a less hawkish policy stance and a belief that a lower rate may be sufficient given the reduced threat from fiscal stimulus or loose financial conditions.
