Goldman Sachs Forecasts 3 Fed Rate Cuts Starting December What That Means for Market Liquidity and Stocks

In its latest economic outlook released on November 5, Goldman Sachs Research reaffirmed a bold expectation: the Federal Reserve will likely implement three interest-rate cuts, starting with one in December 2025, followed by two additional reductions in 2026. This signal of easing monetary policy has significant implications for market liquidity, asset allocation and investor sentiment across global equities and credit markets.

At present, the federal funds rate stands in the 3.75 %–4.00 % range. Goldman Sachs predicts that the first 25-basis-point (bps) cut will come at the December meeting. Looking ahead, they expect further cuts of 25 bps each in March and June 2026, driving a “terminal rate” toward the 3.00 %–3.25 % area. 

Why More Liquidity is Bullish for Markets

Lowering interest rates tends to boost market liquidity and reduce the cost of capital, conditions often linked to stronger equity returns and higher valuations. When central-bank policy becomes more accommodative, investors typically shift portfolio allocations toward risk-assets such as stocks, corporate bonds and even alternative assets that benefit from easier monetary conditions.

Goldman Sachs argues that the anticipated rate cuts will provide a “liquidity cushion” for markets at a time when economic growth is showing signs of moderating and labour metrics are cooling. This provides room for investors to rotate out of defensive positions and into cyclical or growth-oriented holdings, supporting a bullish backdrop for equities and credit risk.

What Investors Should Watch

1. Interest Rate Cycle and Timing

The path of interest-rate cuts matters. While Goldman expects the first cut in December, any delay or deviation could change market expectations and drive volatility. The long-tail keyword “Goldman Sachs Fed December rate cut forecast” captures investor search interest around this scenario.

2. Market Reaction and Valuation Pressure

With renewed liquidity, markets often push valuations higher. However, timing is key investors may front-run policy moves, causing price pressures well before the actual rate cut. The keywords “more liquidity bullish for markets” and “Fed rate cuts supportive equity rally” reflect this trade narrative.

3. Macroeconomic Data and Fed Messaging

The Fed’s decision-making will continue to pivot on inflation, employment and growth indicators. Should labour data or inflation surprise on the upside, the expected cuts could be pushed out. Goldman's forecast itself mentions labour-market cooling as a justification for the cuts. 

4. Credit and Bond Market Dynamics

Lower rates can reduce yields across the board, making bonds less attractive relative to equities. Investors may shift toward higher-risk assets or hunt for yield in alternative credit. The edge here lies in the interplay between fixed income and equity flows.

Potential Risks to the Outlook

While Goldman Sachs’s forecast is optimistic for markets, several risks remain:

• Inflation surprise: A spike in inflation could cause the Fed to maintain higher rates longer.

• Economic shock: If growth worsens materially, markets may drop despite easier policy.

• Policy mis-communication: The Fed could shift tone, delaying cuts or pausing altogether, causing expectation-driven reversals.

• Over-rotation: Investors could overshoot, pushing valuations ahead of fundamentals and risking a correction if growth disappoints.

FAQs

Q1: What did Goldman Sachs forecast regarding Fed rate cuts?
Goldman Sachs expects three 25 bps interest-rate cuts one in December 2025, and two more in 2026, bringing the terminal rate toward 3.00%–3.25%.

Q2: Why is more liquidity considered bullish for markets?
Lower rates reduce borrowing costs, support valuations, encourage investment in risk-assets, and can drive higher return expectations for equities and credit.

Q3: What could derail Goldman’s forecast?
Key risks include unexpected inflation, weak economic data, policy mis-steps by the Fed, or global shocks.

Q4: How should investors position based on this outlook?
Investors may consider increasing allocations to equities, cyclical sectors, credit and risk-assets ahead of rate cuts, while maintaining risk-management strategies for downside protection.

Q5: Are these rate cuts guaranteed?
No. These are forecasted by Goldman Sachs and depend on economic data and Fed policy decisions. The timing or magnitude could change.

Q6: What are long-tail keywords related to this story?
Examples include “Goldman Sachs December 2025 Fed rate cut forecast”, “three Fed rate cuts in 2026 liquidity boost markets”, and “more liquidity bullish for global equities”.