Investing.com– Goldman Sachs analysts say they now expect the Federal Reserve to cut interest rates twice this year, down from their previous forecast of three cuts, amid growing concerns about sticky inflation. and labor market strength.

GS expects two rate cuts in 2025- in June and December, and a further cut in 2026, bringing the Fed’s terminal rate to 3.5% to 3.75%, from the current level of 4.25% to 4.5%.

The investment bank’s shift in expectations came after stronger-than-expected data for December, prompting more bets that the Fed has little immediate motivation to continue cutting rates. interest rate. The reading also caused heavy losses on Wall Street.

The Fed until 2024, but warned of a slower pace of cuts this year. The central bank effectively slashed its outlook for rate cuts to a planned two out of four for 2025, citing concerns over sticky inflation and a strong labor market.

GS analysts said that while their baseline forecast for rates remains more dovish than market pricing, it is difficult to have “great conviction in the timing of cuts” given expectations of strong US economic data, making the cuts reasonable but not critical.

The investment bank also said it is uncertain how the Fed will navigate the increase in trade tariffs under incoming President Donald Trump, who will take office next week.

Trump has promised to impose high import tariffs on many of the US’s major trading partners, especially China. But American importers are expected to pay the tariffs, signaling an increase in domestic goods and services that rely on imports.

However, GS analysts said they do not expect Trump’s fiscal and immigration policies to have a discernible impact on inflation, and that the tariffs are unlikely to raise inflation enough to warrant an increase. in the interest or disturbance of Wall Street.