Synopsis:

Goldman Sachs anticipates no action at the May FOMC meeting but expects the Fed to begin cutting rates by July as labor market weakness accumulates and trade-related recession risks rise.

Key Points:

• May meeting to be quiet:
  The Fed is unlikely to act this week, preferring to wait for hard evidence in labor market and inflation data.

• Higher bar than 2019:
  The FOMC is showing more restraint than during the 2019 trade war, but rising unemployment would still prompt rate cuts even with elevated inflation.

• Survey vs. hard data:
  Recent survey data has worsened, but the Fed has learned not to overreact to soft data and will look for confirmation in actual economic performance.

• Cut timing and path:
  Goldman forecasts three 25bp cuts in July, September, and October, with the first move contingent on data weakness materializing over the next two months.

• Dovish tilt vs. market:
  Goldman remains more dovish than market pricing, citing greater sensitivity to recession risk from tariffs and uncertainty.

Conclusion:

While the May FOMC is expected to be a non-event, Goldman Sachs believes the Fed is on track for rate cuts starting in July, once more definitive signs of economic weakening appear—particularly in employment data.