Goldman Sachs Group Inc. economists now forecast both the Federal Reserve and European Central Bank will cut interest rates three times this year as U.S. President Donald Trump’s tariffs weigh on economic growth.
Economists led by Jan Hatzius now see the Fed cutting in July, September and November, versus earlier bets on two cuts this year and one in 2026. In a separate note, economists led by Sven Jari Stehn said lower European Union growth forecasts reinforce expectations the ECB will cut rates in April and June, with a further quarter percentage-point reduction now seen for July.
For the second time in less than a month, Goldman economists have increased their tariff assumptions, with the average US levy now seen rising 15 percentage points in 2025. President Trump has ratcheted up his tariff onslaught over that period, slapping new duties on steel, aluminum and autos, with planned reciprocal tariffs slated for April 2.
Those higher levies will drive up consumer prices in the US. Goldman now sees year-end 2025 core PCE inflation of 3.5% year on year. The economists also lowered their 2025 US gross domestic product growth forecast by half a percentage point to 1% on a fourth quarter versus year earlier basis. The year-end 2025 unemployment rate forecast is 0.3 point higher at 4.5%.
“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 US economists wrote in a note dated March 30.
“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,” they wrote.
Transitory Redux
Speaking to reporters after the Fed’s March meeting of policymakers, Chair Jerome Powell downplayed growth and inflation concerns. “As I’ve mentioned, it can be the case that it’s appropriate sometimes to look through inflation if it’s going to go away quickly without action by us, if it’s transitory,” Powell said.
He called that scenario the “base case,” but then hedged, saying officials “really can’t know” if the effect will be temporary.
Goldman’s Europe economists lowered their forecasts for EU growth on the back of Trump’s tariffs and likely retaliation from European policymakers.
The Goldman economists now forecast:
- The Trump administration to implement a reciprocal tariff on the EU worth 15 percentage points, raising the total effective tariff rate on the EU by 20 percentage points since the start of 2025.
- Driven mostly by EU retaliation, core inflation forecast rises to 2.1% in the fourth quarter (versus 2% before).
- Goldman now forecasts little GDP growth for the rest of 2025, with non-annualized growth of 0.1%, 0.0% and 0.2% in Q2, Q3 and Q4, respectively.
--With assistance from Zoe Schneeweiss.
©2025 Bloomberg L.P.
