Goldman Sachs economists raised their forecast on how many times the Federal Reserve will cut interest rate this year to three instead of two as concerns mount that President Trump’s tariffs will hamper economic growth.
The Wall Street giant now predicts the Fed will lower rates in July, September and November — an increase from earlier bets on two cuts this year and one in 2026, according to a team of economists led by Jan Hatzius.
For the second time in less than a month, Goldman economists also raised their tariff assumptions. Economists now see the average US levy rising 15 percentage points in 2025.
The revision comes as Trump has ramped up his tariff plans — including levies on foreign-made auto imports — and is expected to roll out a slew of reciprocal tariffs on Wednesday.
“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 Goldman economists wrote in a note on Sunday.
“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.”
Economists have warned the tariffs could reheat inflation as producers are forced to foot the bill, and will likely pass that cost on to consumers.
Goldman economists now expect core PCE inflation — the Federal Reserve’s key gauge — to hit 3.5% year-over-year by the end of 2025.
They also lowered their forecast for US gross domestic product growth in 2025 by half a percentage point to 1%.
Goldman economists raised their expectation for the year-end unemployment rate by 0.3 points to 4.5%.
Earlier this month, the Fed left interest rates unchanged as it warned of faltering economic growth and higher inflation this year.
Central bankers forecast only two interest rate cuts this year.
“As I’ve mentioned, it can be the case that it’s appropriate sometimes to look through inflation if it’s going to go away quickly without action by us, if it’s transitory,” Fed Chair Jerome Powell said.
Markets remained rattled on Monday after Trump doubled down on his promise to impose tariffs on Wednesday, his so-called “Liberation Day.”
Over the weekend, the president said reciprocal tariffs will target all countries and that his new 25% auto tariffs will be permanent — countering White House officials who last week claimed Trump would take a more selective approach to the levies.
He also told NBC News’ Kristen Welker that he “couldn’t care less” if automakers raise their prices in response.
The S&P 500 dropped 0.7% and the Nasdaq 100 fell 1.4% by Monday afternoon.
Goldman’s Europe economists also tempered their forecasts for EU growth as a result of Trump’s tariffs, and likely retaliation from foreign leaders.
The Trump administration is expected to hit the EU with a reciprocal tariff worth 15 percentage points, raising the total rate by 20 percentage points since the start of the year, the economists said.
Core EU inflation is forecast to hit 2.1% in the fourth quarter, above previous expectations of 2%, according to the economists.
Goldman expects little GDP growth for the rest of the year, with non-annualized growth of 0.1%, 0% and 0.2% in the second, third and fourth quarter, respectively.
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