Staff Reporter

Goldman Sachs economists have adjusted their predictions for Federal Reserve interest rate cuts this year, now forecasting three reductions instead of two. This change comes as worries grow that President Trump’s tariffs could hinder economic growth.

The firm anticipates that the Fed will cut rates in July, September, and November, increasing their earlier estimates of two cuts this year and one in 2026. This update comes from a team of economists led by Jan Hatzius.

In a notable shift, Goldman Sachs has also raised its tariff projections for the second time in less than a month. Economists now expect the average U.S. tariff to increase by 15 percentage points by 2025.

This revision coincides with President Trump’s intensified tariff strategies, which include imposing levies on foreign-made automobiles. New reciprocal tariffs are expected to be unveiled on Wednesday.

“The downside risks to the economy from tariffs have heightened the likelihood of a series of ‘insurance’ cuts similar to those in 2019, which we now consider the most probable outcome based on our updated economic forecast,” the Goldman economists noted in a report on Sunday.

While Fed leadership has downplayed rising inflation expectations, the economists believe this could create a higher threshold for rate cuts, particularly as a potential increase in the unemployment rate may justify such actions.

Economists warn that these tariffs could reignite inflation, as producers may be forced to absorb the costs and ultimately pass them on to consumers.

Goldman Sachs economists now project that core PCE inflation—the Federal Reserve’s primary measure—will reach 3.5% year-over-year by the end of 2025. They have also revised their expectations for U.S. gross domestic product (GDP) growth in 2025, lowering it by half a percentage point to 1%.

Additionally, the economists raised their forecast for the year-end unemployment rate to 4.5%, an increase of 0.3 points. Earlier this month, the Fed opted to keep interest rates steady while expressing concerns about slowing economic growth and rising inflation this year. Central bankers are now predicting only two interest rate cuts for the year.

“As I’ve mentioned, it can be appropriate at times to overlook inflation if it’s expected to dissipate quickly without our intervention, if it’s transitory,” said Fed Chair Jerome Powell.

Goldman’s economists for Europe have also adjusted their growth forecasts due to Trump’s tariffs and anticipated retaliation from foreign leaders.

The Trump administration is expected to impose a reciprocal tariff on the EU worth 15 percentage points, bringing the total rate up by 20 points since the beginning of the year.

Core EU inflation is now forecast to hit 2.1% in the fourth quarter, slightly above earlier expectations of 2%. Goldman anticipates minimal GDP growth for the remainder of the year, with non-annualized growth projected at 0.1%, 0%, and 0.2% for the second, third, and fourth quarters, respectively.