Goldman Sachs (GS, Financial) has trimmed its yield forecasts across the curve—signaling it now expects the Fed to move faster on rate cuts. The firm's new call: two-year yields ending 2024 at 3.45% and 10-year yields at 4.20%. That's a notable shift from its previous estimates of 3.85% and 4.50%. Behind the move? A revised view on Fed timing. Goldman's economists now project cuts in September, October, and December—up from just one cut previously. This dovish turn came even before Thursday's jobs report, which on the surface looked strong. But Goldman's rates team flagged that the gains were propped up by government hiring, and labor force participation actually dipped.
This comes as markets try to balance two conflicting forces: higher inflation from new tariffs versus a potential drag on real incomes and consumer spending. It's not a simple story. President Trump is preparing to sign a $3.4 trillion fiscal package that includes tax cuts, adding more debt into the system—and possibly more upward pressure on yields. Even so, Goldman's view skews more dovish than the broader street. Bloomberg consensus has the 10-year finishing Q4 at 4.29%. By contrast, Goldman sees a path to lower yields—despite headline macro noise—driven by softening economic momentum and less policy risk.
The market seems to be leaning Goldman's way. Odds of a Fed cut by September are now over 70%, with swaps pricing in another one before year-end. Goldman's team thinks falling short-term rates could make Treasuries more attractive by easing fiscal risk premia. Their view: if inflation stays in check and growth softens as expected, there's room for rates to drop further. “We see scope for deeper cuts to support lower yields than previously envisioned,” the note concluded—hinting at a potential setup for bond bulls, and a macro backdrop that could reshape investor playbooks heading into the second half.
