Goldman: Fed could be cutting rates in September

President Trump might soon get his wish.

The president has essentially been calling on Federal Reserve Chairman Jerome Powell to cut interest rates since he launched his “Liberation Day” tariffs in April, but the Fed has held off largely to monitor the impact of the tariffs on the economy and on inflation.

But in a report released on Monday, Goldman Sachs Research economists said the Fed could cut rates in September, which would be three months earlier than the Goldman economists had previously forecasted.

The firm has changed its prediction for rate cuts because “very early evidence suggests the effects of this year’s tariff policies are a bit smaller than expected and other disinflationary forces have been stronger.”

Goldman also noted that the U.S. job market appears to be softening after having proven resilient through most of the year.

“While the labor market still looks healthy, it has become hard to find a job,” David Mericle, chief US economist at Goldman Sachs Research, wrote in the report.

The research report was released on the same day that Trump ratcheted up his tariff threats against trading partners, including 25% on goods from both Japan and South Korea that he said will go into effect on August 1.

Other countries that would be hit with tariff levies include Indonesia (32%), Bangladesh (35%), and Thailand and Cambodia (36%).

Treasury Secretary Scott Bessent told CNBC on Monday that the Trump administration would make “several” announcements related to possible trade deals in the next 48 hours.

But it remains to be seen whether Trump’s aggressive approach to tariffs – an approach that doesn’t appear to be softening – will impact what the Fed does when it meets in September.

Powell actually said last week that the Fed would have eased its monetary policy by now if it had not been for the breadth of Trump’s tariffs.

“In effect, we went on hold when we saw the size of the tariffs and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs,” Powell said at the European Central Bank forum in Sintra, Portugal.

The Fed fund rate has been between 4.25% and 4.5% since December.

But Mericle now places the odds of a rate cut in September as “somewhat above” 50%.

In fact, the Goldman Sachs Research team is “penciling-in” a 25-basis-point cut in September, October, and December.

“If there is any insurance motive for cutting, it would be most natural to cut at consecutive meetings,” Mericle wrote. “We do not expect a cut in July.”

Goldman pointed to the fact that some Fed officials have indicated they would support a rate cut in September if the upcoming inflation prints are not too high.

The next inflation report for the U.S. economy, also called the Consumer Price Index report, is set to be released on July 15.