Fed Rate Decision: Goldman Sachs Prices In 5 Rate Cuts By Next Year — Even As Powell Waits For More Data

The Federal Reserve's decision to keep the Fed funds rate, which serves as the benchmark for all the other key interest rates, aligned with expectations.

The dissent by two members, namely Vice Chair for Supervision Michelle Bowman and Fed Governor Christopher Wallace, the first time this has happened in more than 30 years, also did not take the market by surprise. However, the central bank’s signal that rate cuts may not materialize anytime soon spooked the market on Wednesday.

The S&P 500 Index, a measure of broader market performance, remains on an upward trend despite the uncertain interest rate outlook and the threat posed by President Donald Trump’s tariffs.

The Invesco QQQ Trust (QQQ), an exchange-traded fund (ETF) that tracks the Nasdaq 100 Index, has gained 11.40% this year, and the SPDR S&P 500 ETF (SPY) has advanced a more modest 9%. 

The SPY and QQQ streams saw brisk activity on the Stocktwits platform early Thursday, with sentiment turning ‘extremely bullish’ on the back of positive big tech earnings.

Notwithstanding the Fed’s defiant hawkish stance, economists have begun factoring rate cuts in their models.

Following the July rate decision, Goldman Sachs Chief Economist Jan Hatzius said the research firm continues to expect quarter-point (25 basis-point) cuts at each of the three remaining meetings of the year, the Fly reported.

Goldman has factored in two more cuts in 2026, leaving the terminal rate in the current monetary policy cycle at 3% to 3.25%.

Hatzius said the July Federal Open Market Committee meeting did not deliver any “major surprises” and was largely “uneventful.”

In Chair Jerome Powell’s briefing, he stated that the labor market remained solid but emphasized six times that it faces downside risks, the economist noted.

Pointing out the two significant changes in the Fed’s post-meeting policy statement, Comerica Chief Economist Bill Adams said the central bank acknowledged that growth was moderating and that the “uncertainty about the economic outlook remains elevated.”

In comparison, the June statement had said the economic activity continued to expand at a moderate pace and that the uncertainty about the economic outlook had diminished but remained elevated. 

Adams also noted Powell’s statement that there are still two more months of jobs and inflation data and that he was in no hurry to pre-commit to a September cut.

Adams said Comerica forecasts unchanged interest rate decisions for the next two meetings, followed by a quarter-point cut at the December meeting. “If the unemployment rate holds steady and tariffs push up inflation, it will be hard to justify a rate cut in the next few months,” the economist said.

LPL Chief Economist Jeffrey Roach said the policy statement leaves room open for a cut at the September meeting, adding that “If economic conditions weaken, the committee will likely cut rates by a quarter point in September.”

Fund Manager Louis Navellier noted Powell’s comments that any tariff-related spike in inflation would be a one-time occurrence. “But in all candor, the Fed has to cut six times. They have to start cutting in September, cut again in December, and cut another four times next year. The federal funds rate has to get to 3%,” he said. 

For updates and corrections, email newsroom[at]stocktwits[dot]com.

Read Next: Microsoft’s ‘Eye-popping’ Q4 AI, Cloud Strength Wins A Price-Target Hike — Analyst Says ‘Watershed Quarter For Redmond’