Goldman Sachs stated that it anticipates the U.S. Federal Reserve will implement three 25-basis-point interest rate cuts this year, followed by two additional cuts in 2026.
This projection would decrease the terminal rate to a range between 3 percent and 3.25 percent, down from its current level of 4.25 percent to 4.50 percent. The Goldman note came in response to data released on Tuesday, indicating that U.S. consumer prices saw a modest increase in July, rising by just 0.2 percent last month after a rise of 0.3 percent in June, aligning with economists’ forecasts, Reuters reported.
The moderation in the Consumer Price Index was largely attributed to a 2.2 percent decline in gasoline prices. Meanwhile, food prices remained stable after experiencing a 0.3 percent increase for two consecutive months.
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Increasing odds for cuts
U.S. rate futures reflected a 93 percent likelihood of a 25-bps easing next month and a 7 percent chance of a 50-bps rate cut, based on calculations from LSEG. This latter figure had been just 3 percent earlier on Wednesday. Traders also indicated expectations of approximately 65 basis points of easing this year, up from around 60 basis points the previous week.
The slight increase in the odds for a 50-bps cut on Wednesday followed comments from U.S. Treasury Secretary Scott Bessent, who advocated for such cuts during interviews with Fox News on Tuesday and Bloomberg TV on Wednesday. Bessent expressed on Bloomberg TV that he believed an aggressive half-point cut was feasible, considering the recent weak employment figures. His argument was supported by recent data from the Bureau of Labor Statistics, which revealed disappointing employment gains in May, June, and July, contradicting earlier estimates that suggested stronger growth during those months.
“Rates are too constrictive … We should probably be 150 to 175 basis points lower,” Bessent remarked, reflecting the Trump administration’s tendency towards public critique and detailed policy recommendations for the independent central bank.
July inflation overview
The U.S. Consumer Price Index (CPI) for July 2025 reported an annual inflation rate increase of 2.7 percent, slightly below expectations and consistent with the rate from June, according to the U.S. Bureau of Labor Statistics (BLS). Core inflation, which excludes food and energy, intensified to a year-over-year rate of 3.1 percent, marking the most significant monthly core CPI increase since January. Key factors contributing to this rise included a 0.2 percent monthly increase in shelter costs, while energy prices saw a decline of 1.1 percent, particularly with gasoline prices dropping by 2.2 percent. Food prices held steady overall, with food away from home rising by 0.3 percent, balanced by a 0.1 percent decrease in food at home prices. This intricate inflation profile indicates that while headline inflation remains relatively contained, underlying pressures in housing and services persist, impacting considerations for Federal Reserve policy.