Goldman Sachs announced on Wednesday that it anticipates the U.S. Federal Reserve will implement three 25-basis-point interest rate cuts this year, with an additional two cuts expected in 2026.
This forecast suggests a terminal rate between 3% and 3.25%, a decrease from the current range of 4.25%-4.50%. The Goldman report followed Tuesday’s data indicating a modest rise in U.S. consumer prices, which increased by just 0.2% in July, after a 0.3% gain in June, aligning with economists’ predictions.
The easing in the Consumer Price Index was largely due to a 2.2% drop in gasoline prices. Meanwhile, food prices remained stable after rising by 0.3% for two consecutive months.
As of late Wednesday, U.S. rate futures reflected a 93% likelihood of a 25-basis-point cut next month, with a 7% chance of a 50-basis-point reduction, according to LSEG calculations. This figure was up from 3% earlier that day.
Traders also indicated an expectation of about 65 basis points of easing this year, an increase from roughly 60 basis points the previous week.
The uptick in the odds for a 50-basis-point cut follows comments from U.S. Treasury Secretary Scott Bessent, who advocated for such cuts during interviews with Fox News and Bloomberg TV. Bessent suggested that a half-point reduction might be warranted given recent weak employment figures.
He cited Bureau of Labor Statistics data showing disappointing employment growth in May, June, and July, contrasting with earlier estimates that suggested stronger gains.
“Rates are too constrictive… We should probably be 150 to 175 basis points lower,” Bessent stated, echoing the previous administration’s tendency to publicly critique and advise the independent central bank on policy matters.
