Goldman Sachs economists forecast more interest rate cuts this year on fears tied to Trumps tariffs

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.“A...