Goldman Sachs: Expects the Federal Reserve to cut interest rates three times this year; China's June Caixin Manufacturing PMI exceeds expectations

According to the Zhitong Finance APP, Goldman Sachs has released a research report stating that it has raised its forecast for the Federal Reserve's federal funds rate cuts to three times this year (previously one time), expecting rate cuts in September, October, and December, and still anticipates two more 25 basis point cuts in 2026, thus lowering the terminal rate forecast to 3%-3.25%. Meanwhile, China's Caixin Manufacturing PMI for June significantly rebounded to 50.4, greatly exceeding market expectations.

Goldman Sachs' main points are as follows:

1. Expecting three rate cuts by the Federal Reserve this year, terminal rate lowered to 3%-3.25%

Goldman Sachs Investment Research (GIR) has raised its forecast for the Federal Reserve's federal funds rate cuts to three times this year (previously one time), and also expects two more cuts in 2026, thus lowering the terminal rate forecast to 3%-3.25%.

Goldman Sachs has moved its next rate cut prediction to September, previously expecting a cut in December, as it originally believed that the impact of summer tariffs on monthly inflation peaks would make earlier cuts tricky. However, preliminary evidence suggests that the impact of tariffs seems to be smaller than expected, with other factors suppressing inflation more strongly, and it is speculated that the Federal Reserve leadership agrees that tariffs will only have a one-time effect on price levels. Although the labor market appears to remain healthy, finding jobs has become difficult, and residual seasonal factors and changes in immigration policy pose short-term downside risks to employment numbers.

Goldman Sachs expects three rate cuts in September, October, and December, and still anticipates two more 25 basis point cuts in 2026, thus lowering the terminal rate forecast to 3%-3.25% (previously 3.5%-3.75%).

2. S&P 500 enters historically strongest month

From historical data, the S&P 500 index is entering its strongest month—reviewing data since 1928, the average return in July is 1.67%.

3. Commentary on China's macroeconomic data

China's Caixin Manufacturing Purchasing Managers' Index (PMI) for June significantly rose from 48.3 in May to 50.4, greatly exceeding market expectations (Chart 1). Among the main sub-indices, the output sub-index jumped from 47.5 to 52.1, the new orders sub-index rose from 47.4 to 50.2, and the employment sub-index slightly increased from 48.4 to 48.7. The supplier delivery time sub-index fell from 49.8 in May to 49.5 in June. Respondent companies indicated that improved trade conditions and promotional activities in June drove new orders to grow again. However, they also pointed out that due to still weak external demand, the growth rate of new orders was only a slight increase In terms of sub-indices related to trade, the new export orders sub-index rose from 46.2 in May to 49.4 in June. Respondent companies mentioned that consumer goods exports still face pressure after the U.S. imposed tariffs, leading to a contraction in new export orders for the third consecutive month. The inventory sub-index indicates a decrease in inventory. The raw materials inventory sub-index slightly dropped from 50.1 to 50.0, while the finished goods inventory sub-index fell from 50.3 to 49.8.

Both the National Bureau of Statistics (NBS) and Caixin Manufacturing PMI increased in June, but the rise in Caixin PMI was more significant, reflecting a lag in the response of Caixin Manufacturing PMI to the tariff reductions announced in mid-May between China and the U.S. The difference between the NBS Manufacturing PMI, which remained below 50 in June, and the Caixin Manufacturing PMI may also be partly due to the different coverage of the two (the Caixin survey covers more export-oriented industries, while the NBS covers more upstream industries).