Equity Research

US Daily: Shifting to a September Cut and a Lower Terminal Rate

We are pulling forward our forecast for the next cut to September. We had previously expected a cut in December because we thought that the peak summer tariff effects on monthly inflation would make it awkward to cut sooner. But the very early evidence suggests that the tariff effects look a bit smaller than we expected, other disinflationary forces have been stronger, and we suspect that the Fed leadership shares our view that tariffs will only have a one-time price level effect. And while the labor market still looks healthy, it has become hard to find a job, and both residual seasonality and immigration policy changes pose near-term downside risk to payrolls.

We Now Expect Three 25bp Rate Cuts in September, October, and December, and Two More Cuts in 2026 to a Terminal Rate of 3-3.25% (vs. 3.5-3.75% Previously)

Source: Goldman Sachs Global Investment Research

30 Jun 2025 | Research | Economics - Jan Hatzius, David Mericle and others
 

Also read: USA: Powell Reiterates Wait-and-See Approach to Policy, Does Not Comment on July Cut

Global Markets Daily: Cross-Asset Implications If the Fed Eases More Quickly

Since late April, the market has upgraded its growth views while pricing a more dovish Fed. The tighter policy shock that the market priced in early April has reversed by less than the negative growth shock, although the market has begun in recent days to push more sharply towards pricing more Fed easing. Strong labor market data and higher inflation prints over the summer would now likely pose a challenge to the easing the market has priced, but another month or two of friendlier inflation news could create more room for the market to push further towards pricing earlier and deeper easing, even without a sharp rise in the unemployment rate. Conditional on that scenario, what should investors do? We illustrate here what various versions of the market moving towards pricing more Fed easing might look like across assets.

30 Jun 2025 | Research | Economics - Vickie Chang