Goldman Sachs expects the Federal Reserve to lower rates three times by year-end (25 bps each), with further easing in 2026.
The shift follows July inflation data showing a modest 0.2% m/m rise in headline CPI and a 0.3% m/m increase in core, or 2.7% and 3.1% year over year, respectively. Futures now imply very high odds of a September cut.
Why the view changed: labor is losing momentum
July’s jobs report signaled a clear slowdown. Nonfarm payrolls rose just 73,000 and the unemployment rate ticked up to 4.2%. Notably, prior months were revised down by a combined 258,000, underscoring weaker underlying momentum. Softer hiring plus easing headline inflation give the Fed more cover to begin cutting.
Timing and what to watch
With three regular FOMC meetings left (September, October, December), a “three-by-year-end” path maps neatly onto the calendar. Watch incoming labor prints and CPI details—especially shelter and medical services—to gauge whether the Fed can maintain a steady cadence after the first move. The Fed’s official meeting calendars are posted publicly.
Market setup
Rate futures put the odds of a September cut around the 90% area after the July CPI release; some pricing even entertained a small chance of a larger move earlier last week.
That backdrop supports front-end yield compression and a modest curve steepening if a multi-cut path is validated. Equities typically favor a “soft-landing” easing cycle, while the dollar can drift softer if relative policy turns more dovish.
Key risks to the Goldman Sachs three-cut path
A firmer run-rate in core services inflation, renewed goods pressure (e.g., tariff pass-through), or a rebound in wage growth could slow the cadence to one or two cuts.
Conversely, another weak jobs print with negative revisions could pull the Fed toward a faster easing pace. For now, Goldman’s baseline leans on softening labor data and contained headline inflation.
