Goldman Sachs Asset Management anticipates the Federal Reserve will execute two more 25 basis point cuts in 2023, scheduled for October and December. This prediction assumes inflation does not unexpectedly increase, nor the labour market experience a sharp recovery.
The asset management firm believes the Fed’s current strategy favours a gradual easing path. The dot plot skew shows policymakers’ confidence in decreasing inflation and rising growth risks.
Factors That Could Alter The Forecast
Goldman Sachs asserts that only substantial surprises in inflation or a rapid labour market rebound could alter this forecast, deterring the Fed from the additional cuts. Without such unexpected developments, the Federal Reserve aims for a balanced approach, maintaining inflation control while supporting economic growth.
The firm’s analysis suggests that the FOMC’s risk management perspective now tilts toward caution. The majority of members are signalling a shift to less restrictive policy settings, indicating that further rate reductions by year-end are likely.
For 2026, Goldman Sachs envisions the Federal Open Market Committee (FOMC) implementing two more cuts. This projection aligns with the broader expectation of continued easing to support sustainable growth.
Following yesterday’s rate cut, we see a clear path for two more quarter-point reductions this year, likely in October and December. This predictable approach from the Federal Reserve suggests a steady hand, aimed at guiding the economy toward a soft landing. Traders should anticipate a continued dovish policy unless major economic data forces a change in direction.
Current Market Conditions and Strategies
This view is supported by the latest data, which showed August inflation cooling to a 2.8% annual rate and the last jobs report indicating a softer labor market with only 150,000 jobs added. These figures give policymakers the justification they need to continue easing financial conditions. After the aggressive rate hikes we saw back in 2022 and 2023, the current cycle is now firmly tilted toward loosening.
For those trading interest rate derivatives, this points toward positioning for lower short-term rates, perhaps through options on SOFR futures. The Fed’s gradual pace should also dampen volatility, making strategies that benefit from stable rate declines more appealing. Any significant pop in yields over the coming weeks could be seen as a selling opportunity.
In the equity markets, a dovish Fed is a tailwind, meaning call options or call spreads on major indices like the S&P 500 could prove effective. This policy path may also weigh on the US dollar. We could therefore see more interest in put options on dollar indexes as the interest rate differential with other currencies narrows.
The primary risk to this outlook would be a sudden re-acceleration in inflation or an unexpectedly strong employment report. Traders should watch the next CPI and non-farm payroll releases closely for any signs of economic strength that could derail the planned cuts. Such a surprise would likely cause a sharp repricing in rates and a spike in market volatility.
Looking further out, the easing cycle is expected to extend into 2026 with an additional two cuts. This long-term perspective suggests that the current environment of policy support will likely persist. This reinforces the idea that the path of least resistance for interest rates is downward for the foreseeable future.
