Goldman Sachs continues to expect economic growth to be better this year, with the Fed cutting interest rates by 50 basis points.

“We still expect the first rate cut in September and then we expect five in a row months of better inflation news,” chief economist Jan Hatzius wrote in a note on Sunday. “Our confidence remains somewhat limited as we continue to view cuts as optional, our expected inflation news will make a decision to cut prudent but not obvious, and FOMC participants have a diversity of views.”

“However, we believe that decisions by other central banks to begin cutting based on the significant but incomplete cumulative progress made so far on inflation makes it somewhat more likely that the Fed will do the same,” Hatzius added.

“We maintain our headline economic forecasts that GDP growth this year will exceed expectations, the labor market will remain strong, and the remainder of the inflation overshoot will eventually reverse without necessarily weakening the economy,” he said.

“After September, we expect quarterly interest rate cuts to a final level of 3.25-3.5%.”

“This means a second reduction in December, for a total of two reductions in 2024, four more in 2025 and two in 2026.” – said Hatzius. “Upside risks (tariffs and higher r*) and downside risks (recessions) in this modal view appear broadly balanced, and our probability-weighted Fed forecast is only slightly more dovish than market prices.”