Goldman Sees Higher Chance of Fed Cutting Next Month on Tariffs

(Bloomberg) --

Goldman Sachs Inc. economists now see a greater chance that the Federal Reserve will lower interest rates in September after Donald Trump threatened to impose new tariffs on Chinese goods.

"We now see a 70% chance of a 25 basis point cut, a 10% chance of a 50 basis point cut, and a 20% chance of no policy change in September," the bank’s economists led by Jan Hatzius wrote in a note.

They had previously pegged a 55% chance for a quarter-point cut next month.

Trump’s sudden announcement Thursday of 10% levies on $300 billion of Chinese goods -- expected to include smartphones, computers and clothing -- is likely to pile downward pressure on the world economy, forcing central banks to respond.

Chairman Jerome Powell this week partly attributed the Fed’s first interest rate cut since the financial crisis to the effects of the U.S. and China trade war.

"We now see a 90% chance of at least one additional cut (beyond that announced on Wednesday) at some point this year (vs. 80% previously)," Goldman’s economists wrote. "We have not changed our baseline forecast that the Fed will cut by a total of 50 basis points, but the announcement tilts the risks toward deeper cuts."

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To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Chris Bourke, Michael Heath

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