Goldman Sachs: Fed Rate Cuts Now Expected in June & September

Michael Ross

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Traders' Opinions

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Summary:

Goldman Sachs pushes Fed rate cut forecast to mid-2024, citing a robust economy and stubborn inflation.

Goldman Sachs has significantly revised its forecast for the Federal Reserve's interest rate policy, now predicting the first rate cuts will occur in June and September 2024. This marks a notable delay from the bank's previous expectation of a cut in March.

The updated analysis, reported by Walter Bloomberg, signals a major shift in Wall Street's outlook on the U.S. central bank's strategy for managing inflation. The investment bank now projects two consecutive quarter-percentage-point (25 basis points) reductions this year, suggesting a more measured approach to monetary easing.

Why the Delay? Strong Data and Sticky Inflation

The change in Goldman's forecast is rooted in a comprehensive analysis of recent economic data and communications from the Fed. Several key indicators suggest the economy is more resilient than previously thought, giving policymakers reason to maintain a restrictive stance for longer.

• Strong Labor Market: January's employment report revealed unexpectedly robust job creation.

• Resilient Consumer Spending: Data shows that consumer activity remains strong.

• Persistent Inflation: While overall inflation is moderating, certain "sticky" categories, particularly in the services sector, remain above the Fed's target.

The Federal Reserve currently holds its benchmark interest rate in the 5.25% to 5.50% range, the highest level in over two decades. The delayed timeline suggests the central bank will keep rates at this level for several more months to ensure inflation is sustainably returning to its 2% target.

This cautious approach aligns with recent statements from Fed officials, including Chair Jerome Powell, who has consistently emphasized the need for greater confidence that inflation is on a firm downward path before cutting rates. Market futures pricing now largely reflects this sentiment, with June widely seen as the most probable starting point for easing.

The Ripple Effect on Markets and the Economy

A delayed timeline for rate cuts has significant implications across the economy and financial markets.

For consumers, the extended period of high rates means borrowing costs for mortgages, auto loans, and credit cards will remain elevated for longer. Businesses may also postpone investment decisions, waiting for more favorable financing conditions.

Financial markets have already been adjusting to this new reality. Bond yields have risen in recent weeks as expectations for near-term cuts faded. However, equity markets have shown resilience, as the strong economic data underpinning the delay is also a positive sign for corporate health. The extended period of higher rates could also strengthen the U.S. dollar, impacting international trade.

The global economic context further supports a patient approach. Central banks in Europe, including the Bank of England and the European Central Bank, have voiced similar concerns about persistent inflation, reducing pressure on the Fed to act prematurely.

Key Risks That Could Change the Fed's Plan

While the mid-2024 timeline is now the base case, several factors could alter the Federal Reserve's path:

• Accelerating Inflation: An unexpected rise in prices could force the Fed to delay cuts even further.

• Weakening Labor Market: A significant increase in job losses might prompt the Fed to cut rates sooner to support the economy.

• Financial Instability: Any new stress in the banking sector could trigger a faster policy response.

• Global Shocks: Unforeseen international crises could force a complete reassessment of monetary policy.

A Measured Approach to Monetary Policy

The Federal Reserve has historically preferred gradual, measured policy shifts over abrupt changes. The tightening cycle from 2015 to 2018, for example, involved a series of slow, predictable rate hikes. Goldman Sachs' revised forecast suggests the central bank will adopt a similar strategy for easing, carefully managing the transition to lower rates.

Ultimately, the Fed's main challenge in 2024 remains balancing the need to control inflation with its goal of supporting economic growth. The updated forecast from Goldman Sachs provides a clear framework for how Wall Street sees this balancing act playing out, with a patient Fed waiting until mid-year to begin its policy pivot.

Frequently Asked Questions About the Fed's Next Move

Why did Goldman change its forecast?

Goldman Sachs adjusted its timeline based on economic data showing a strong labor market, resilient consumer spending, and persistent services inflation. This suggests the Fed will need more time to be confident that inflation is fully under control before it begins cutting rates.

How many rate cuts does Goldman now predict for 2024?

The bank now expects two 25-basis-point (0.25%) rate cuts in 2024, one in June and another in September. This is a more conservative outlook than earlier forecasts, which anticipated more aggressive easing.

What economic data is behind the delay?

The key indicators influencing the change were stronger-than-expected employment numbers, robust consumer spending data, and inflation measures that showed "stickiness" in the services sector. Cautious messaging from Fed officials also played a significant role.

How does this delay impact consumers and businesses?

Consumers will continue to face higher interest rates on loans for homes, cars, and credit cards. Businesses may delay major investments due to the higher cost of financing, which could modestly slow economic expansion.

Is an earlier rate cut still possible?

While not impossible, an earlier cut is now considered unlikely. For the Fed to cut rates in March, there would need to be a sudden and significant downturn in the economy or a rapid drop in inflation—neither of which is supported by the latest data.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Oliver Scott

Remarks of Officials

Data Interpretation

Economic

Central Bank

Economists at Goldman Sachs are projecting a healthy US economy in 2026, fueled by a combination of tax cuts, real wage gains, and rising household wealth. The bank’s outlook, detailed in a January 11 report, also anticipates moderating inflation throughout the year.

Federal Reserve Poised for Two Rate Cuts

Despite a generally positive forecast, Goldman points to uncertainty in the labor market as a key factor for monetary policy. The firm expects the Federal Reserve to deliver two 25-basis-point interest rate cuts in 2026, slated for June and September.

Goldman's Bullish 2026 Projections

Goldman's forecasts are notably more optimistic than the consensus. A mid-December Bloomberg survey of economists showed an expectation of 2% US growth in 2026, matching the 2025 forecast, with President Donald Trump's tax cuts seen as a key support for America's economic outperformance.

By contrast, Goldman Sachs anticipates a stronger performance:

• GDP Growth: 2.5% on a fourth-quarter-over-fourth-quarter basis, or 2.8% on a full-year basis.

• Inflation: Core personal consumption expenditures (PCE) inflation is forecast to reach 2.1% year-on-year by December, with the core consumer price index (CPI) slowing to 2%.

• Unemployment: The baseline forecast sees the unemployment rate stabilizing at 4.5%.

AI and Productivity to Drive New Growth Cycle

According to David Mericle, Goldman's chief US economist, the drivers of economic growth are set to change. "The composition of GDP growth will look different from last cycle in the years ahead," Mericle wrote. "More will come from productivity growth, which has rebounded and should receive a boost from artificial intelligence, and less will come from labor supply growth with immigration now much lower."

However, this shift carries risks. The report notes the possibility of a period of "jobless growth" if companies increasingly leverage artificial intelligence to reduce labor costs.

Consumer and Business Spending Outlook

Goldman expects consumer spending to grow steadily, underpinned by the dual benefits of tax cuts and rising real wages.

Meanwhile, business investment is forecast to be the strongest component of GDP in 2026. Mericle attributes this strength to easier financial conditions, reduced policy uncertainty, and various tax incentives.

On trade, the bank assumes that cost-of-living issues will become a major theme in the upcoming mid-term elections, leading the White House to avoid any significant new tariff increases.

To stay updated on all economic events of today, please check out our Economic calendar

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Gerik

Economic

Political

Escalating Tensions Between the Federal Reserve and White House

Federal Reserve Chairman Jerome Powell confirmed that the U.S. Department of Justice has issued subpoenas to the central bank and raised the possibility of criminal indictment over his summer testimony concerning the Fed’s $2.5 billion building renovation. This legal maneuver, he said in a video statement released Sunday, is not about the renovation itself but about undermining the Fed’s capacity to conduct monetary policy independently.

This confrontation marks a pivotal moment in the increasingly fraught relationship between Powell and President Donald Trump, who has repeatedly pressured the Fed to cut interest rates faster. The subpoena stems from Powell’s appearance before the Senate Banking Committee in June, where he defended the renovation project against Republican claims that it included lavish elements like rooftop terraces and VIP dining rooms. Powell dismissed many of those claims, saying they were either exaggerated or not included in the actual plan.

Renovation Dispute Becomes a Flashpoint

The building renovation has become more than a bureaucratic matter of infrastructure upgrades. It has evolved into a symbolic battleground for broader concerns over fiscal governance and political interference. While Powell insisted that details like white marble or custom elevators were inaccurate, the administration's Office of Management and Budget still questioned the project’s transparency and compliance. These developments suggest a deeper causal strategy of using procedural issues to exert control over the central bank.

President Trump’s on-site visit to the renovation project in July, where he stood beside Powell and exaggerated the costs, indicates a shifting stance. Though Trump publicly claimed he wanted the renovation completed and avoided direct accusations, his administration’s actions signal otherwise. The dissonance between Trump's comments and the DOJ's aggressive posture reflects a potential strategy of plausible deniability while advancing pressure behind the scenes.

Monetary Policy Under Political Threat

In his video address, Powell positioned the DOJ's actions as part of a broader campaign to compromise the Fed's institutional independence. He directly linked the threat of indictment to an effort to reshape how monetary decisions are made, replacing data-driven analysis with political expediency. This suggests a causal not merely correlational relationship between the DOJ's probe and the administration’s frustration over current interest rate policies.

The Federal Reserve has already walked back some policy areas under pressure from the Trump administration, including its earlier attempts to incorporate climate risk assessments into financial stability evaluations. However, Powell's recent tone signals a refusal to compromise further in the face of legal intimidation.

Legal Fallout and Institutional Backlash

The DOJ has not publicly commented on the specific case, citing confidentiality, though it confirmed that Attorney General Pam Bondi has prioritized investigations into taxpayer fund misuse. The subpoena of Powell has drawn criticism from lawmakers, including Republican Senator Thom Tillis, who called the move a threat to central bank independence and pledged to block any future nominations to the Fed until the matter is resolved.

This level of political intrusion is historically rare. Trump has also moved to dismiss Fed Governor Lisa Cook, another unprecedented step. Cook is currently engaged in legal action to retain her post, and the Supreme Court is scheduled to hear her case later this month. The convergence of these events raises serious questions about whether the administration is systematically targeting institutional figures seen as resistant to political directives.

White House Denials and Powell’s Counteroffensive

Trump, when questioned by NBC News, denied any knowledge of the investigation and dismissed the notion that it was intended to influence monetary policy decisions. However, the pattern of DOJ activity under his administration frequently aimed at perceived political opponents makes that denial difficult to accept at face value.

Powell’s public stance signals a rare moment of defiance from a Fed chair, who typically avoids confrontations with the executive branch. His video message underlines the seriousness with which he views the threats not as a personal matter, but as a constitutional and economic crisis in the making.

Independence at a Crossroads

The developments surrounding Powell’s subpoena illustrate an alarming erosion of boundaries between political authority and institutional oversight. Whether the DOJ's actions result in a formal indictment or not, the damage to the perception of the Fed’s independence may already be done. The conflict sets a precedent that monetary policy decisions could be increasingly shaped by political will rather than economic rationale.

The stakes extend far beyond building renovations. At issue is whether the Federal Reserve can continue to operate as an autonomous entity or whether it will become another agency beholden to shifting political agendas. This moment may prove decisive in defining the future of U.S. monetary policy and the resilience of its democratic institutions.

Source: Reuters

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Oliver Scott

Data Interpretation

Economic

Analysts at Citigroup are warning that Indonesia's fiscal deficit is on track to surge past its legal limit this year, driven by major spending initiatives from the new government. The key drivers include a nationwide free meals program and extensive rebuilding efforts in flood-damaged provinces on Sumatra island.

Citigroup Projects a Widening Budget Gap

In a recent note, Citi revised its forecast for Indonesia's 2026 budget deficit to 3.5% of gross domestic product (GDP), a significant increase from its previous estimate of 2.7%. This projection assumes the government will amend the State Finance law before the second half of the year to lift the long-standing 3% fiscal deficit cap.

This development follows a budget shortfall of 2.9% of GDP in 2025, which was the widest deficit in at least two decades, excluding the pandemic era. The strain on state finances is intensifying as soft economic growth and weaker commodity prices impact revenue, just as President Prabowo Subianto prepares to boost social spending.

Citi also projects that Indonesia's debt-to-GDP ratio will climb from an estimated 39% in 2025 to approximately 42% by 2029. However, the bank notes that a breach of the fiscal cap could be avoided if the government opts for sharp spending cuts to maintain fiscal discipline.

The Core Drivers of Indonesia's Rising Deficit

The anticipated rise in government spending stems from several large-scale programs:

• Free Meals Program: Citi expects this initiative to reach its full scale of 83 million beneficiaries by the second quarter, pushing its total cost to around 300 trillion rupiah ($18 billion).

• Sumatra Flood Rebuilding: Reconstructing the flood-hit provinces may require an estimated 60 trillion rupiah over an unspecified period.

• Regional Transfers: Payments to regional governments could also increase as Prabowo aims to advance difficult reforms this year.

These costs could also deplete the government's contingency spending buffers—funds set aside to cover revenue shortfalls or emergency expenses.

Bank of America Offers a Contrasting View

While Citigroup anticipates a breach, Bank of America Corp. maintains that the budget deficit will likely be kept under the 3% GDP threshold this year. However, BofA economists expressed concern over Indonesia's lackluster revenue collection.

In a note, they argued that the government's target to increase state revenue by 14% annually in 2026 appears ambitious given the current trend. Revenue collections actually shrank in the early months of 2025, and only a 16% jump in December revenue likely prevented the deficit from exceeding the legal limit last year.

Still, BofA suggests the government has options. It could tap into its sizable contingency fund allocated for 2026 or simply rein in its spending plans to stay within the established fiscal boundaries.

To stay updated on all economic events of today, please check out our Economic calendar

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Justin

Commodity

Forex

Gold And Silver Analysis: Geopolitical Risks And Fed Cut Bets Drive Bullish Breakouts_1

Gold (XAU) breaks record above $4,550 as safe-haven demand increased on geopolitical tensions and expectations of US interest rate cuts. A weaker than expected US jobs report supported the rally in the precious metals.

The main reason for increase in gold price despite the overbought conditions is the increase in geopolitical tensions. According to some reports, President Trump is considering military action in Iran in the wake of civilian unrest. Meanwhile UK and Germany are planning to increase their presence in Greenland and this escalates Arctic tensions. These developments have added a degree of uncertainty around the world that strengthens the traditional role of gold as a safe haven during a crisis.

On the other hand silver prices are supported by the same combination of macro risks and dovish expectations. However, silver does have industrial demand which provides another layer of strength. The recent pullback has been shallow which indicates ongoing bullish interest. With gold setting records silver (XAG) is catching up, and the psychological target of around $100 is now not far away.

The market is now awaiting the U.S. CPI inflation report that is due on Tuesday. This data may provide confirmation for the Fed rate cut paths. A softer inflation print may add more fuel to the rally in gold and silver.

Gold Technical Analysis

The daily chart for spot gold shows that the price has made excellent support at $4,260 after breaking higher and currently looks strong. The rebound from $4,260 looks constructive and is pointing higher in the coming days.

The price action is now completing a new ascending broadening wedge pattern and this pattern suggests much higher levels in 2026.

Gold And Silver Analysis: Geopolitical Risks And Fed Cut Bets Drive Bullish Breakouts_2

The 4-hour chart for spot gold illustrates that the correction off $4,550 met strong support at $4,260 and created an inverse head and shoulders above this level.

The picture of the inverted head and shoulders in the red shaded area means a strong bullish pattern. This bullish price action suggests more upside in the next few days.

Gold And Silver Analysis: Geopolitical Risks And Fed Cut Bets Drive Bullish Breakouts_3

Silver Technical Analysis

The daily chart of spot silver shows that the silver price is trading within ascending broadening wedge pattern and looks set to trade higher. The immediate resistance is still in the $90 to $100 level.

The formation of a cup and handle pattern inside the ascending broadening wedge is a good sign of continued upside for next few days. As long as the strong support of $70 is respected, it is certain that the next move in the silver market will be higher.

Gold And Silver Analysis: Geopolitical Risks And Fed Cut Bets Drive Bullish Breakouts_4

The 4-hour chart of spot silver shows that silver is forming bullish price action within the ascending broadening wedge pattern. The target of the ascending broadening wedge is still between $90 to $100.

The formation of the ascending broadening wedge pattern shows high volatility as the price is approaching the psychological level of $100.

Gold And Silver Analysis: Geopolitical Risks And Fed Cut Bets Drive Bullish Breakouts_5

US Dollar Technical Analysis

The daily chart of the US Dollar Index shows that the index rebounded from 97.50 support and hit 200 day SMA. The index is now consolidating between the 50 day and 200 day SMA and looks uncertain.

Since both averages are approaching the 99 level, the next move in the US Dollar Index is uncertain. A break below 97.50 will signal more downside towards 96.50. However, a break above 100.50 is needed to cancel the bearish pressure in the US Dollar Index.

Gold And Silver Analysis: Geopolitical Risks And Fed Cut Bets Drive Bullish Breakouts_6

The 4-hour chart for the US Dollar Index shows a period of very strong consolidation between the 96.50 and 100.50 levels. Despite this consolidation, the overall price action is still negative.

A break below 97.50 is needed to take the index further down. However, a break above 100.50 will take the index to 102 level.

Gold And Silver Analysis: Geopolitical Risks And Fed Cut Bets Drive Bullish Breakouts_7

Source: FX Empire

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Isaac Bennett

Remarks of Officials

Forex

Economic

Political

Japan’s ruling Liberal Democratic Party (LDP) is reportedly preparing to dissolve the Lower House for a snap election, potentially as early as February. This strategic move appears designed to leverage Prime Minister Sanae Takaichi's remarkably high public approval ratings and solidify the LDP's grip on power.

Prime Minister Sanae Takaichi's high approval ratings are fueling speculation of a snap election in Japan.

LDP Aims to Capitalize on Takaichi's Popularity

According to public broadcaster NHK, preparations are already underway, with the Ministry of Internal Affairs and Communications instructing prefectural election boards to get ready for a possible general election.

The timing is driven by Prime Minister Takaichi's strong public standing. A Nikkei survey puts her approval rating at a historic 75%, marking the third consecutive month it has stayed above the 70% threshold. This popularity persists even as her government navigates a diplomatic dispute with Beijing, sparked by her November comments suggesting Japan's Self-Defense Forces might intervene in response to Chinese military action against Taiwan.

If called in February, the election would occur just four months into Takaichi's term. It would also be the first national test for the LDP's new coalition with its junior partner, the Japan Innovation Party (JIP). Speaking to Takaichi, JIP leader Hirofumi Yoshimura noted that the prime minister's perspective on the election's timing has shifted to a "new stage," signaling that discussions are advancing.

A Fragile Hold on the Diet

While Takaichi's personal ratings are high, her coalition's control over the legislature is thin. The LDP and JIP, along with three independents, hold 233 seats—a slim majority in the 465-seat Lower House.

The situation is more challenging in the Upper House, where the coalition is in the minority with only 119 of the 250 seats. A successful snap election could strengthen the coalition's mandate and provide a more stable foundation for its policy agenda.

Opposition Parties Sense an Opportunity

The opposition is gearing up for a fight. Yoshihiko Noda, leader of the Constitutional Democratic Party of Japan (CDP), the country's largest opposition party, has vowed to oust the ruling coalition.

The CDP currently holds 148 seats in the Lower House and is reportedly exploring an alliance with Komeito, the LDP's former coalition partner. Komeito, which controls 24 seats, broke its long-standing partnership with the LDP in October 2025 during Takaichi's run for prime minister, citing "illegal political financing practices" within the LDP. The LDP-Komeito alliance had been a cornerstone of Japanese politics since 1999.

Economic Headwinds Challenge the Government

Despite her political strength, Prime Minister Takaichi faces a complex set of economic challenges that could become central issues in an election campaign. Key concerns include:

• A Weakening Yen: The Japanese yen has fallen to its weakest level against the dollar in a year, recently hitting 158.19.

• Persistent Inflation: Consumer inflation has remained above the Bank of Japan's target for 44 consecutive months, putting pressure on households.

• Economic Contraction: Revised GDP figures for the third quarter revealed that the economy shrank by 0.6% quarter-on-quarter and 2.3% on an annualized basis, a deeper contraction than initially estimated.

To stay updated on all economic events of today, please check out our Economic calendar

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Gerik

Political

Widespread Unrest and Mounting Civilian Deaths

Iran’s internal crisis has intensified dramatically, with more than 544 confirmed deaths and over 10,000 individuals imprisoned since protests erupted nearly three weeks ago. The unrest, recorded across all 31 provinces and 186 cities, now represents one of the most significant threats to the current regime in over a decade. These figures, provided by the U.S.-based Human Rights Activists News Agency, indicate the extraordinary scale of the movement, though precise data remains difficult to verify due to ongoing state-enforced communication blackouts.

The regime’s response has included heavy-handed crackdowns and a nationwide restriction of internet and phone access. The dramatic collapse in digital connectivity reportedly down to just 1% of standard levels has not only curtailed global visibility into the unrest but also attempted to silence dissent. Yet, demonstrators persist. In defiance of warnings, hundreds of thousands continue to gather in public spaces, many flashing mobile lights in darkened streets while chanting against Supreme Leader Ayatollah Ali Khamenei.

The communication blackout, although intended as a tool of suppression, is a correlated not necessarily causal factor in the protestors’ resilience. Rather than dissuading mobilization, these restrictions may have reinforced the sense of oppression fueling public anger.

International Involvement and Strategic Uncertainty

President Donald Trump has stated that U.S. military leaders are examining a “range of strong options” for responding to Iranian actions, including the possibility of direct strikes. The President also signaled potential support in restoring internet access via Elon Musk’s Starlink satellite system. While this remains a speculative solution, it reflects the growing entanglement of geopolitical and technological actors in the evolving conflict.

Iranian leaders have framed the crisis as foreign-instigated, with President Masoud Pezeshkian accusing the U.S. and Israel of introducing “terrorists” who allegedly committed extreme violence, including arson and executions. These claims, absent independent verification, appear to serve a narrative aimed at delegitimizing grassroots anger by externalizing blame.

Parliament Speaker Mohammad Bagher Ghalibaf extended the warning further, suggesting Iran may preemptively target U.S. and Israeli military assets if provoked. This rhetoric underscores a causally significant escalation in Iran’s posture, potentially inviting further international tension.

Contrasting Leadership Responses: Condolences vs. Threats

While Pezeshkian offered public condolences and vague promises of reform during a televised interview, no concrete measures were outlined. His conciliatory tone diverged sharply from the militaristic statements of other officials. This internal discrepancy suggests a lack of strategic consensus within the regime, which may further exacerbate public distrust and confusion.

Meanwhile, exiled opposition figures such as Reza Pahlavi, son of Iran’s former shah, have encouraged sustained strikes and occupations of city centers. His advocacy for seizing this moment to “liberate” Iran from authoritarian control marks a symbolic push for regime change, albeit without a clearly defined alternative leadership structure.

Unverified Footage and Human Cost

Despite digital suppression, disturbing images have surfaced online. Videos from Tehran reportedly show families searching through rows of body bags in makeshift morgues. Other scenes reveal torchlit protests, burned-out government buildings, and city-wide blackouts. Though these visuals remain unverified by independent sources like Bloomberg, they serve as visceral testimonies of a nation in crisis.

The developments in Iran reflect a complex interplay of domestic dissatisfaction, authoritarian resistance, and international pressure. While the protest movement has demonstrated remarkable endurance despite brutal crackdowns and information suppression, it remains uncertain whether this upheaval will culminate in reform, regime change, or further repression.

The factors influencing this crisis digital censorship, military rhetoric, foreign policy narratives, and grassroots mobilization are intertwined through both causal and correlational relationships. Any external intervention, whether military or technological, may radically shift the trajectory, but the human toll continues to mount regardless.

In the coming days, how the U.S., Israel, and internal Iranian factions navigate these pressures will determine whether the unrest evolves into a turning point in Iranian history or sinks further into violent stalemate.