Goldman Sachs now sees the next Fed rate cut coming months earlier
In a note released Monday, Goldman economist Jan Hatzius and team said they do not expect the Fed to lower official borrowing costs this month, unless Thursday's nonfarm-payrolls report is weaker than expected. They now see three 25-basis-point cuts in September, October and December.
My wife and I have $7,000 a month in pensions and Social Security, plus $140,000 cash. Can we afford to retire?
'Finance makes me break out in hives': I inherited $240K from my parents. Do I pay off my $258K mortgage and give up my job?
I'm a stay-at-home mom. Do I take a part-time job to spend more time with my kids — or get a job for six figures?
The last holdout bears are Democrats, these strategists say. Their capitulation could fuel the next leg higher for stocks.
This income fund pays more than a bank account while keeping price volatility low
That would take the Fed funds rate to a range of 3.50% to 3.75%. Goldman expects another two 25-basis-point reductions in 2026, taking the Fed's terminal rate — or the rate at which this cycle of cutting ends — to 3% to 3.25%. The Wall Street bank had forecast a terminal rate of 3.5% to 3.75%.
The main reason Hatzius and his team are bringing forward the rate-cut forecast to September is that they now believe the Trump tariff strategy may not have a large, lasting impact on consumer-price inflation.
'We had previously expected a cut in December because we thought that the peak summer tariff effects on monthly inflation would make it awkward to cut sooner,' they said.
'But the very early evidence suggests that the tariff effects look a bit smaller than we expected, other disinflationary forces have been stronger, and we suspect that the Fed leadership shares our view that tariffs will only have a one-time price level effect,' they added.
Hatzius and his team also noted that recent comments from some Fed officials suggest they could support a cut at the September meeting if upcoming inflation prints are not too high.
Recent comments from Fed governor Michelle Bowman 'also suggest that some FOMC participants might not be that bothered if upcoming inflation reports are a bit firmer, so long as this is visibly driven by tariff effects,' Goldman said.
Surveys showing falling inflation expectations among households are also making it easier for the Fed to cut rates as signs emerge of a weakening labor market, according to Goldman.
'While Fed officials have tried to set a higher bar for cutting than in 2019, any scare in an upcoming employment report could make cutting sooner the path of least resistance again,' the bank said.
The dollar index fell DXY to a fresh three-year low on Tuesday as traders increased bets on Fed rate cuts. The 2-year Treasury yield BX:TMUBMUSD02Y, which is particularly sensitive to monetary policy, dipped to 3.709%, near its lowest level in two months.
The move by Goldman comes as Fed Chair Jerome Powell faced further haranguing by President Donald Trump, who argued that the central bank should cut interest rates to as low as 1%.
'I do all the yard work, cooking and cleaning': I live with my daughter and her lazy boyfriend. She wants me to buy her house. Do I say yes?
'I'm single': At 70, I have $500,000 in stocks and $220,000 in savings. How do I invest my $130,000 windfall?
A sputtering jobs market is now a top risk for stocks and bonds in the second half of 2025
My mother, 89, keeps getting her credit card scammed. She gets a new one — and it happens again. What's going on?
Why out-of-favor Apple holds the key to tech stocks in the coming weeks
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CNBC
5 minutes ago
- CNBC
September is in play for Fed cut, says Paul McCulley
CNBC's Steve Liesman with Paul McCulley, former PIMCO chief economist, join 'The Exchange' to discuss the next Fed chair, odds of a September rate cut and expectations for tomorrow's Fed meeting.
Yahoo
20 minutes ago
- Yahoo
What the GOP's megabill promotional plan doesn't mention
National Republicans want their House conference to sell President Donald Trump's megabill during Congress' August recess, rather than duck and let Democrats push a narrative that the bill is a tax cut for the rich. That advice is memorialized in a five-page memo from the National Republican Congressional Committee, which was obtained by POLITICO. "The best defense is a good offense," the NRCC memo read. It urged lawmakers to beware of "trackers" who catch members off message, distribute talking points through interviews with local media and not let Democratic activity "distract you from driving your message." The memo reveals how the party hopes to communicate a potential vulnerability ahead of next year's midterms. In particular, the NRCC wants members to cast the bill's Medicaid cuts — already a top target of Democrats — as an overhaul that will strengthen the program. The organization also highlights polls showing voters support work requirements and removing ineligible recipients from coverage. 'With the One Big Beautiful Bill signed into law by President Trump just a few weeks ago, this is a critical opportunity to continue to define how this legislation will help every voter and push back on Democrat fearmongering,' the NRCC wrote in the memo. The comprehensive memo from Republicans' campaign arm shows just how crucial the messaging battle will be ahead of 2026, as both parties expect the megabill, recently signed into law, to become one of the top issues of the cycle. Republicans want to avoid letting Democrats control the message around the bill, especially given that midterms historically favor the party that is out of power — and rule of the House could be decided by just a few seats. By equipping the conference with ample talking points, the NRCC is hoping members can stave off the onslaught of attacks from Democrats. The memo relays a few areas the NRCC wants members to focus on, including getting ahead of the attacks that Democrats have already started waging about the bill. 'We can't let them control the narrative,' the NRCC said of Democrats. In warning GOP members not to fall for Democratic 'trackers,' or political operatives who will try to get them to say damaging info, while they are back home, the NRCC advised, 'They are not reporters or constituents; you do not owe them a response.' In addition to Medicaid, the NRCC urged its members to highlight tax relief, immigration, business reforms and 'holding elites accountable.' On Monday, Vice President JD Vance offered an example for Republican legislators, calling out Ohio Democratic lawmakers by name during a rally in the state. 'You know why she's not here today?' Vance said of Rep. Emilia Sykes. 'Because she's not celebrating no taxes on tips, she's not celebrating no taxes overtime, she's not celebrating the highest rising take home pay in 60 years, because she fought us every step of the way on the big beautiful bill.' And the NRCC suggested its members hold roundtables and visit hospitals, restaurants and small businesses to highlight specific provisions of the bill. It advises holding in-person interviews with local media outlets. The memo, however, did not address whether to hold town halls, something that became a hot-button issue the last time lawmakers went home for an extended period. Democrats — armed with their own talking points — are already planning rallies in red districts across the country as they begin to realize their own messaging plans. They hope to paint the bill as a tax cut for the wealthy at the expense of Americans who use programs like Medicaid and SNAP. 'The Big, Ugly Law is a political disaster,' Democratic Congressional Campaign Committee spokesperson Viet Shelton said in a statement. 'The American people know it's a giveaway to billionaires that's paid for by ripping away health care from millions and jacking up folks' energy costs. Everyone hates it and vulnerable House Republicans know it, which is why they're scared to face their constituents in person during the August recess.' Last week, NRCC chair Rep. Richard Hudson (R-N.C.) told reporters he would 'love for [Democrats] to come to my district,' but cautioned members of Democrats infiltrating in-person town halls. 'Democrats are still pretty determined to hijack our town halls and try to prevent us from having this conversation with our constituents, so I would encourage them to use other means,' Hudson said last week. Still, there is a note of caution to members not to let the opposing party set the agenda. 'Seek to drown out Democrats' efforts to knock you off message with a disciplined and compelling communications effort of your own,' the memo advised.
Yahoo
21 minutes ago
- Yahoo
How is the Dow calculated? Here's a breakdown.
The Dow Jones Industrial Average (DJI) is an index comprised of 30 stocks. Because of its structure, it doesn't always trade in sync with other indexes like the S&P 500 (GSPC) and Nasdaq Composite (IXIC). In the video above, Stocks in Translation Host Jared Blikre explains how the Dow works. To watch more expert insights and analysis on the latest market action, check out more Stocks in Translation here. Today in Stocks and Translation, we're gonna take a look at how the Dow is actually calculated. Now, the Dow was born all the way back in 1896, nearly 130 years ago, before computers, before calculators, so this index of 30 stocks had to be easy to calculate. And for sake of simplicity, only the stock prices used. So the higher the stock price, the greater the weight in the index. And almost every other index, by the way, like the S&P and the Nasdaq, they use a company's market capitalization, but that gives that requires a lot more paperwork and more calculations. So here's the full method. Basically, you sum the prices of all 30 stocks in the index, and then you divide it by a number called the Dow divisor, which corrects for splits and changes in the components of the stocks. So anytime a stock has a stock split in the index, or when one stock is swapped out for another one, that Dow divisor will change. Now, here is a list of the four top stocks by price. Goldman Sachs is right at the top, with $723.65 as of the close yesterday. Microsoft is number two, Caterpillar is number three, Home Depot is number four. Now, United Health has a stock price of about $267 today, but before, uh, just a few months ago, it topped out at about 600, so it actually would have been number two in this list, had it not seen such a big slide. And I went in, and I calculated what the Dow would look like with different configurations here. So the orange line right here, which terminates last, that is the actual Dow. And then when you take out United Health in ye yellow, you have that line up here. And then I also took out Salesforce, Merck, and then Apple, because those were some of the biggest losers this year by percentage terms. And what you end up with is is a material materially higher Dow price without these big drags in it. And some of them can be actually quite big. And I also did another calculation here. I took, uh, the Dow price-weighted, that's the normal price weighting in white here, and then I also calculated it by market cap, starting at the beginning of the year. And when you do it by market cap, and I'm just gonna kind of trace this out here, we actually saw a lot more volatility by the lows. And again, this just includes all 30 stocks. I'm not taking out United Health or any of them. I'm just doing a different alternate calculation. So more volatility with the market cap weight, uh, version that we saw this year. Now, to sum up all the results, here's the market cap weighted 2025 year-to-date return. That came in at 7.3%. The actual price weighted number that everybody uses is 5.4%, and then the Dow minus United Health, that came in all the way up to 9.3%. And then you can take out Salesforce and Merck, and the numbers keep going up, and by the time you take out Apple, you have a Dow that's up 12.4%, and that's more than double the actual return of 5% and change. So something to think about here, uh, there's no guarantee that the Dow will always be calculated like this, but after 130 years, maybe they're just not gonna change. Tune into Stocks and Translation podcast for more jargon-busting deep dives. New episodes can be found every Tuesday and Thursday on Yahoo Finance's website, or wherever you find your podcasts. Related Videos Fed meeting: Why holding rates steady would be the 'right call' Market is seeing 'pockets of speculation,' not 'excessive' froth Berkshire trims VeriSign stake, Novo Nordisk craters, PayPal falls Market's 'fuel' for further P/E expansion is 'nearing empty' Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
