NextFin news, Goldman Sachs Research (GSR) has recently projected that the US Federal Reserve (Fed) will cut interest rates again in December 2025. This forecast comes amid observable and “genuine” weakness in the US job market, which GSR believes will persist through the Federal Open Market Committee’s (FOMC) December meeting and beyond. The prediction marks a continuation of the Fed's recent dovish turn under the administration of President Donald Trump, who was inaugurated on January 20, 2025.
The forecasted rate cut in December follows the Fed’s October decision to reduce the federal funds target rate by 25 basis points to a range of 3.75%-4%. Additionally, the Fed has announced that it will stop the runoff of its $6.6 trillion balance sheet starting December, opting to reinvest principal payments from mortgage-backed securities into Treasury bills instead. These measures aim to stabilize financial conditions amid a cooling labor market and inflation approaching the 2% target.
According to GSR, labor market indicators show a gradual but undeniable cooling trend, with official government data releases currently limited due to a government shutdown. Nonetheless, alternative metrics and statements from Fed Chair Jerome Powell suggest inflation (excluding tariff effects) is nearing the Fed’s symmetric 2% inflation target. Despite Powell’s relatively hawkish tone during the recent press conference, GSR expects the Fed to proceed with lowering rates, including two additional 25-basis-point cuts forecast for March and June 2026, pushing the terminal rate down to approximately 3%-3.25%.
David Mericle, GSR’s chief US economist, notes that labor market data through the end of the year is “unlikely to send a convincingly reassuring message” to contain concerns over economic slowdown. The Department of Government Efficiency’s deferred resignations of government employees are also expected to contribute to weaker payroll reports in October and November, reinforcing the Fed’s cautious posture.
This outlook reflects a nuanced balancing act: while inflation is stabilizing near target, the real economy and labor market reveal fragilities that warrant accommodative monetary policy. The anticipated tightening pause and easing trajectory are a strategic response to sustain economic momentum without reigniting inflation pressures.
These developments are situated within the broader macroeconomic environment under President Donald Trump’s administration, where the Fed's monetary policy approach faces complex dynamics, including global uncertainties and the aftermath of past aggressive rate hikes. The projected rate cuts aim to support ongoing economic expansion, employment, and consumer confidence moving into 2026.
For investors, businesses, and policymakers, the GSR forecast signals an expectation of continued monetary support amidst labor market challenges. It underscores the importance of watching employment indicators closely as early signals of economic shifts. Should labor market softness deepen, the Fed might extend its easing cycle beyond mid-2026, further influencing credit conditions and capital allocation.
Overall, GSR’s analysis positions the Fed's December 2025 cut as a prudent, data-driven measure anchored in genuine labor market weaknesses. This policy trajectory highlights the Fed's risk management focus, aiming to preempt deterioration in economic conditions while anchoring inflation expectations—an essential monetary strategy given current uncertainties.
Looking ahead, market participants should prepare for a potentially prolonged period of low interest rates relative to past cycles. The implications extend to sectors sensitive to borrowing costs such as housing, consumer finance, and business investment, which may see increased activity under a more accommodative Fed. Simultaneously, cautious optimism in the labor market recovery dynamics remains vital for sustaining the economic backdrop supporting these policy moves.
According to the authoritative source Fibre2Fashion quoting Goldman Sachs Research, this forecast aligns with broader market consensus anticipating a late-2025 pivot in the Fed’s stance. This policy outlook reinforces the importance of adaptive financial strategies as monetary conditions evolve under President Trump’s administration heading into the next year.
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