Goldman Sachs has revised its forecast for the U.S. Federal Reserve, predicting three quarter-point interest rate cuts this year due to heightened recession risks amid tariff uncertainties. The brokerage now anticipates consecutive rate cuts in July, September, and November, marking a shift from its earlier prediction of two cuts in June and December. This adjustment comes ahead of clarity on President Donald Trump’s reciprocal tariff plan, with expectations of a 15 percentage point increase in tariff rates, a scenario previously considered a “risk-case” but now deemed more probable.
White House officials have indicated tolerance for short-term economic weakness to achieve policy goals. Consequently, Goldman Sachs now estimates a 12-month recession probability of 35%, up from its previous estimate of 20%. The Federal Reserve maintained its benchmark interest rate at 4.25-4.50% in March, citing “unusually elevated” uncertainty and challenges in economic projections due to recent policy changes by the Trump administration.
The Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation measure, increased 0.3% in February, following a similar rise in January. In light of these developments, Goldman Sachs has lowered its fourth-quarter GDP growth forecast to 1.0% and raised its year-end unemployment rate forecast to 4.5%. The brokerage warns that the risks associated with the April 2 tariffs are greater than many market participants have assumed.
— new from Reuters