Goldman Sachs is doubling down on its dovish rate path forecast, saying the Federal Reserve is poised to deliver five interest rate cuts through the end of next year—three in 2025 and two more in 2026—a significantly more aggressive easing cycle than markets are currently pricing in.
- SPDR Gold Trust (NYSE:GLD) ETF has rallied 26% year-to-date. See real-time price here.
In a report published Monday, Goldman economist David Mericle said he expects no change at this Wednesday's FOMC meeting but reaffirmed the bank's base case: 25-basis-point cuts in September, October and December, followed by two more in 2026, bringing the terminal Fed Funds rate down to 3–3.25%.
"The activity data have now begun to show clearer support for forecasts of below-potential growth than they had at the time of prior FOMC meetings," Mericle wrote.
What's Driving Goldman's Call?
The firm pointed to a deceleration in consumer spending, which it said slowed more than expected in the first half of 2025—even before the full impact of Donald Trump's tariff regime is felt. Investment softness, primarily in housing, and policy-related uncertainty are also contributing to the economic downshift.
Goldman believes the inflation battle is largely over, citing the rebalancing of the labor market and a return to pre-pandemic trendlines.
The only upside risk? A temporary tariff-driven boost to core inflation, estimated at about 1 percentage point, which it sees as a one-time effect unlikely to alter long-term inflation expectations.
The firm echoed Fed Governor Christopher Waller's view that tariffs won't ignite a prolonged inflation wave.
"We expect the underlying inflation trend to continue converging to 2% this year," the note said.
Market Expectations Lag Behind
Despite Goldman's confidence, markets remain more cautious.
Fed futures data from CME Group shows a 73% chance of just two rate cuts in 2025.
Meanwhile, Kalshi's CFTC-regulated contracts assign the highest probability to two cuts (50bps) at 40%, with only 10% odds for the three-cut scenario Goldman forecasts for this year.
What To Expect From Powell?
The Fed is widely expected to hold rates steady this week at the 5.25%–5.50% range.
Goldman anticipates no strong forward guidance in the July statement or Powell's press conference. Instead, the tone will likely shift from describing growth as "solid" to "moderate" to reflect slower first-half expansion.
Mericle expects both Governor Bowman and Waller to likely dissent and vote for a 25-basis-point rate cut.
While Powell may be asked whether the two cuts projected in the Fed's June dot plot remain the baseline, he's unlikely to commit—preferring to emphasize the "meeting-by-meeting" approach with two key inflation and jobs prints still due before September.
Bottom Line
Goldman Sachs sees the Fed cutting faster and deeper than Wall Street believes.
If growth slows further and inflation stays tame—aside from a short-lived tariff bump—the market may be underestimating the pace of policy easing in the months ahead.
Read Next:
Image created using artificial intelligence via Midjourney.
