Insights 
VT 
Goldman Sachs has updated its forecast for the Federal Open Market Committee (FOMC) rate cut to December, previously expecting it in July. This adjustment is due to recent developments in the trade war and eased financial conditions over the past month.
The bank has increased its 2025 growth forecast by 0.5 percentage points to 1% for the fourth quarter year-over-year. The probability of a recession within the next 12 months has been reduced to 35%, and the core PCE inflation peak is now predicted at 3.6%, a decrease from 3.8%.
Us Tariff Reductions On China
Goldman Sachs notes that while US tariff reductions on China are beneficial, the overall effective tariff rate will remain high. They expect a minor decrease of less than 2 percentage points in the effective tariff rate from the relaxation of tariffs on China. The total set of US tariffs will remain higher and broader than previous market expectations from earlier this year.
What Goldman Sachs is effectively suggesting here is a tempering of earlier expectations regarding US monetary policy, predicting that rate cuts by the Federal Reserve will happen later in the year than originally anticipated. This delay stems from both international trade considerations – such as reduced tensions in the US-China tariff dialogue – and improvements in financial conditions that have occurred in the past several weeks. These changes have allowed policymakers to potentially wait longer before adjusting interest rates.
The forecasted shift to December rather than July signals a slower pace in monetary easing, pointing to increasing confidence in the US economy’s short-term resilience. With recession odds eased to a 35% chance within the next year, there’s an implication that downside risks, while still present, have lessened – though not completely receded. Inflation projections have likewise been trimmed, with core personal consumption expenditures (PCE) now expected to peak at 3.6%. That’s still above the Federal Reserve’s long-term target but moving in the right direction according to recent data trends and the growing confidence among institutional analysts.
Meanwhile, Hawtin’s assessment of the trade tariffs indicates an incremental but limited benefit. Despite the headline of tariff reductions, the actual fall in the effective rate is forecast to be minimal – under two percentage points. Tariff relief is slightly helpful to companies with production and supply chain exposure to China, but the broader implication is that overall trade policy remains restrictive by historic norms. This sustains pricing pressures, particularly in sectors where costs are passed through slowly.
Macro Indicators And Stability
The implication for us derived from this set of projections is that the immediate environment is not one of abrupt changes or unexpected shocks. Rather, it offers a runway of clarity in terms of policy timeline, which can assist in modelling rate sensitivities over coming expiration cycles. With the cut now further afield, pricing around duration-sensitive exposures may need to be revisited. There remains a gap between inflation expectations anchoring downward and the chance of aggressive easing; the latter appears reduced for now.
As we look at positioning, the current macro indicators reflect improved stability, but not yet softness that might demand urgency. Powell’s committee appears to be watching data on employment and spending patterns, letting it gather more evidence before acting. That slower rhythm provides room to adjust calendar spreads or reassess rate expectations over longer-dated instruments.
We also note that while the downward revision in growth capex may be modest, Sachs’ quarter-four forecast now anticipates only 1% real GDP growth year-over-year in 2025. That presents a ceiling on re-leveraging assumptions. There’s some room to plan around flatter output, which may contain upside risks but also decrease volatility in scenarios priced into long gamma.
Tariff effects, if they remain largely symbolic, offer limited relief on margin pressures, particularly in manufacturing-heavy exposures. However, the predictability of steady tariffs – rather than the threat of fresh rounds – removes some of the recent tail risk from macro hedging strategies. It’s not a stimulus, but it tempers disruption, and that reduction in surprise probability can be tactically beneficial.
In short, what we’re dealing with is a stretched policy runway, calmer financial conditions, limited but still present inflation, and no meaningful easing impulse yet coming through from trade policy. The message isn’t about stability returning, but rather a reprieve from urgency. And in derivative terms, that reprieve presents manageable drift rather than signals of violent repricing.
