US Fed policy in focus: Barclays, Goldman Sachs push rate cut forecast to July after strong jobs report

US Fed policy in focus: Global brokerages Barclays and Goldman Sachs said on Friday, May 2, that they were expecting the US Federal Reserve to deliver the next interest rate cut in July, after a stronger-than-expected jobs report. They had previously forecast a rate cut by Fed policymakers in June 2025.

Official data on Friday showed, US nonfarm payrolls increased more than expected in April 2025, with the unemployment rate steady at 4.2 per cent. Economists see a grim outlook for the US economy but are sticking by projections for two interest-rate cuts from the US Federal Reserve this year.

A report released earlier this week showed the economy contracted in the first quarter — for the first time since 2022 — as a surge in pre-tariff imports drove down gross domestic product. The report showed that some key components of the economy, including consumer spending, are healthy.

US Fed policy: What do economists foresee on Fed rate cuts?

According to Bloomberg, several economists now predict a recession, or a zero-growth scenario that narrowly avoids a recession, in the next 12 months, up from 26 per cent in March. Despite that shift, the median estimate of respondents still saw the US Fed lowering its benchmark rate only twice this year, with quarter-point cuts in September and December.

The new forecasts come after US President Donald Trump imposed new tariffs on imported goods from around the world, with particularly high levies on China. Economists do not expect the Fed to change language from its March 19 post-meeting statement that said the Federal Open Market Committee (FOMC) is attentive to risks to both sides of its dual mandate.

US Fed to meet on May 6 for next policy decision

US Fed policymakers, headed by Chairman Jerome Powell, will next meet May 6-7 to deliberate the new set of policy decisions. Fed officials have so far left interest rates unchanged this year. They have signalled that interest rates will likely be kept on hold as they wait to examine the evolving economic data and how the tariff hikes may impact the growth.

Companies have also kept hiring so far this year, albeit at a slower pace than in the previous few years, and layoffs have remained low. Progress on cooling inflation, which remains above the Fed’s two per cent goal, stalled out in the second half of 2024, but price pressures somewhat abated in March.

According to Nigel Green, CEO of deVere Group, the US Fed is out of time and out of room to manoeuvre. For months, markets believed a soft landing could be engineered — inflation brought to heel while keeping the economy intact. “That narrative is now unravelling,” said Green.

The data shows persistent price stickiness and weakening real activity. At the same time, Trump’s reassertion of control in Washington has altered the Fed’s strategic landscape. With sweeping tariff proposals, aggressive fiscal ambitions, and an open discussion of central bank reform, his policies are inflationary by design. “Trump has flipped the board,” said Nigel Green.

“His agenda involves heavier government spending and new trade barriers — both of which push inflation higher. The Fed now has to consider not just the economy, but the political shadow being cast across financial markets.”

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