Goldman Sachs has pushed back the timing of its expected Federal Reserve rate reductions, placing the last two cuts in its forecast in June and December of 2027. The shift follows a stretch of stronger-than-anticipated jobs readings that, according to the bank, reduce the immediate need for the Fed to lower policy rates this year.
David Mericle, an economist at Goldman Sachs, adjusted the schedule after noting that trend job growth has accelerated noticeably in recent months. The bank previously forecast the two cuts to arrive in December 2026 and March 2027.
Mericle has also trimmed his projection for the unemployment rate this year, now expecting it to edge up only to 4.4%, down from his earlier 4.6% forecast. He indicated that this smaller rise in unemployment is "not enough to create a sense of urgency to lower rates."
Explaining the revised timing, Mericle pointed to a trio of forces he expects will sustain year-over-year core personal consumption expenditures (PCE) inflation above the Fed's target for an extended period: tariff passthrough, elevated oil prices tied to the war, and distortions from AI-related demand that he described as "(mismeasured and overstated)." He wrote that the most natural path for the Federal Open Market Committee is to delay additional cuts until those effects have faded and core PCE is closer to the 2% objective.
Goldman projects that the combined impact of tariffs, war-related energy costs, and the AI demand distortions will keep year-over-year core PCE inflation above 3% throughout 2026, with inflation only moving back toward 2% in 2027.
Despite these pressures, Mericle emphasized that the underlying inflation backdrop shows signs of softness. He noted that wage growth is running about half a percentage point below the pace consistent with stable 2% inflation, and that leading indicators for rent growth remain very low. "As a result, we continue to expect inflation to fall to close to 2% in 2027, barring additional supply shocks," he wrote.
On the question of further tightening, Goldman now assigns a 20% probability to an additional Fed rate hike, up from a previous 10% assessment. Mericle pointed out that recent Fed commentary has adopted a slightly more hawkish tone and that resilient growth and employment data reduce the risk that an extra hike would prove to be a policy mistake.
The bank left its forecast for the terminal fed funds rate unchanged at 3.00-3.25%. Mericle acknowledged, however, that an extended pause in policy could persuade Fed officials that rates are already at an appropriate level, making a prolonged flat path a credible alternative to Goldman's baseline easing schedule.
Even with a somewhat more hawkish tilt in its scenario analysis, Goldman said its probability-weighted view of the Fed's path is still significantly more dovish than current market pricing, reflecting the bank's judgment that eventual easing remains likely when the identified inflation drivers subside.
Summary: Goldman Sachs has delayed the final two cuts in its Fed forecast to June and December 2027 after stronger labor-market data and persistent core inflation pressures. The bank lowered its unemployment forecast for this year to 4.4% and raised the odds of an additional rate hike to 20%. Goldman expects core PCE inflation to stay above 3% through 2026 before moving toward 2% in 2027, while keeping its terminal rate forecast at 3.00-3.25%.