US Fed policy in focus: Barclays and Goldman Sachs said on Friday that they were expecting the U.S. Federal Reserve to deliver the next interest rate cut in July, after a stronger-than-expected jobs report.

They had previously forecast a rate cut in June.

Data on Friday showed, nonfarm payrolls increased more than expected in April, with the unemployment rate steady at 4.2%.

Economists see a darkening outlook for the US economy but are sticking by projections for two interest-rate cuts from the Federal Reserve this year.

Three-quarters of economists surveyed by Bloomberg now predict a recession, or a zero-growth scenario that narrowly avoids a recession, in the next 12 months, up from 26% in March. Despite that shift, the median estimate of respondents still saw the Fed lowering its benchmark lending rate only twice this year, with quarter-point cuts in September and December. Policymakers next meet May 6-7.

The new forecasts come after President Donald Trump imposed new tariffs on imported goods from around the world, with particularly high levies on China. The survey was conducted April 25-30.

Fed officials have so far left interest rates unchanged this year. They’ve signaled they’re likely to keep rates on hold as they wait for data showing how the new trade policies, as well as others expected from the Trump administration this year, are affecting the economy.

A report released earlier this week showed the economy contracted in the first quarter — for the first time since 2022 — as a surge in pre-tariff imports drove down gross domestic product. Underlying details of the report showed that some key components of the economy remained healthy, including consumer spending.

Companies have also kept hiring so far this year, albeit at a slower pace than in the previous few years, and layoffs have remained low. Progress on cooling inflation, which remains above the Fed’s 2% goal, stalled out in the second half of 2024 but price pressures somewhat abated in March.

Economists are highly attuned to how tariffs and policies like tax reform, reduced immigration and deregulation could impact inflation and unemployment in the months ahead. More respondents signaled concern over both higher unemployment and inflation. A large majority said that made it somewhat likely or highly likely that the Fed’s two mandates — to control inflation and maximize employment — would come into direct conflict in the next 12 months.

The economists were divided, however, over how the Fed would seek to resolve that conflict. A quarter said officials would lean against inflation by holding interest rates steady, 32% predicted they would cut rates to support the economy and 43% said policymakers would initially hold rates steady but eventually lower rates as the economy weakened.

“Tariffs could show up in the inflation within just a couple of months, and Fed officials are concerned about the potential for second-round effects,” James Knightley, chief international economist at ING, said in comments submitted with his response.

He expects price pressures to keep the Fed on hold in May and June. Economic weakness, brought on by lower consumer sentiment and government and business spending, will then drive rate cuts starting in September, Knightley said.

Respondents unanimously said they expected a severe, negative reaction in financial markets should Trump move to fire Fed Chair Jerome Powell.

Nearly two-thirds of respondents said such a step by the president would cause a severe and sustained negative reaction, or a financial crisis. The remaining economists expected a severe, but abbreviated negative market reaction.

Those results come as Trump continues to criticize the Fed. After one outburst, National Economic Council Director Kevin Hassett told reporters on April 18 the president was studying the question of whether he’s able to fire Powell. After stocks dropped and Treasury yields rose, Trump subsequently said he had no intention of firing the Fed chair.

“The Fed and Trump are on a collision course and once it becomes clear that the Fed has taken a sustained pause in the cutting cycle, Trump is likely to take steps to either remove Powell from the chair or undermine his authority by appointing a shadow chair,” said Philip Marey, senior US strategist at Rabobank.

Nearly all respondents said they don’t expect the Fed to change language from its March 19 post-meeting statement that said the Federal Open Market Committee is attentive to risks to both sides of its dual mandate.