• Goldman Sachs revises its Fed rate cut forecast to September 2025, citing stronger disinflation and milder tariff impacts.
  • The firm sees a slightly above 50% chance of a September cut, with potential follow-ups in October and December, mirroring the 2019 easing cycle.
  • Labor market softness introduces downside risks to payrolls, though a July cut remains unlikely barring significantly weak jobs data.

A Pivot in Fed Expectations

Goldman Sachs has adjusted its outlook for the Federal Reserve's first interest rate cut, now projecting it will come in September 2025—three months earlier than its previous December forecast. The shift reflects "smaller-than-expected tariff impacts and stronger disinflation," according to the firm's research team led by Chief Economist Jan Hatzius. While the U.S. labor market remains resilient, emerging signs of softening—such as increased difficulty for job seekers—pose risks to future payroll growth.

The Path Forward for Monetary Policy

The updated forecast suggests a slightly above 50% probability of a September cut, followed by potential reductions in October and December, resembling the Fed's 2019 easing pattern. Goldman also lowered its terminal rate projection to 3–3.25%, down from 3.5–3.75%, signaling a more accommodative long-term stance. However, a July cut is unlikely unless this week’s jobs data disappoints significantly. "The Fed is data-dependent, but September now looks like the clearest window," a source familiar with Goldman’s analysis noted.

Economic and Market Implications

Goldman’s revision aligns with broader optimism as inflation cools and trade policy fears ease. The firm’s Q1 2025 earnings—$15.06 billion in revenue and a 16.9% ROE—underscore its confidence in navigating this shifting landscape. Still, risks linger, including geopolitical tensions and fiscal imbalances. For now, markets are breathing easier: Borrowers may see relief sooner, and equities have rallied on the improved outlook. But as one trader put it, "The Fed’s next move hinges on whether the jobs engine sputters or hums along."