(March 31): Goldman Sachs Group Inc economists now expect the Federal Reserve (Fed) will cut interest rates three times this year as US President Donald Trump’s tariffs weigh on economic growth and drive up unemployment.

Economists led by Jan Hatzius now see the Fed cutting in July, September and November, versus earlier bets on two cuts this year and one in 2026. For the second time in less than a month, Goldman has increased its tariff assumptions and now expects the average US tariff rate to rise 15 percentage points in 2025, the economists wrote in a Sunday note. 

Those higher levies will drive up consumer prices. Goldman now sees year-end 2025 core personal consumption expenditures inflation of 3.5% year-on-year. The economists also lowered their 2025 gross domestic product (GDP) growth forecast by half a percentage point to 1% on a fourth quarter versus a year earlier basis. The year-end 2025 unemployment rate forecast is 0.3 point higher at 4.5%.

“The downside risks to the economy from tariffs have increased the likelihood of a package of 2019-style ‘insurance’ cuts, which we now see as the modal outcome under our revised economic forecast,” the economists wrote. “While the Fed leadership has downplayed the rise in inflation expectations so far, we think it does raise the bar for rate cuts and in particular puts greater emphasis on a potential increase in the unemployment rate as a justification for cuts.”

In a separate note, Goldman economists led by Sven Jari Stehn lowed their forecasts for growth in the European Union (EU) economies on the back of Trump’s tariffs and likely retaliation from European policymakers.

The Goldman economists now forecast:

Those revisions reinforce Goldman’s expectation that the ECB will cut interest rates in both April and June, with a further 25 percentage-point reduction now seen for July for a terminal rate of 1.75%, the economists wrote. 

Read also:
Goldman’s Kostin slashes S&P 500 target again on growth risk

Uploaded by Tham Yek Lee