New outlook from Goldman Sachs
Goldman Sachs said on Friday it no longer expects the U.S. Federal Reserve to reduce interest rates in 2026, instead forecasting that the policy easing will be pushed into 2027. The firm now identifies June 2027 and December 2027 as the most likely months for rate cuts - a revision from its prior view of 25-basis-point reductions in December 2026 and March 2027.
Driver: stronger jobs data
The change in timing followed a U.S. payrolls report that surprised on the upside, which Goldman said pointed to renewed strength in the labor market. That resilience in activity and employment, the bank added, gives the Federal Reserve greater latitude to keep rates unchanged even as the conflict in the Middle East contributes to inflationary pressures.
How Goldman frames the risks
Goldman noted in its analysis that the "resilient activity and employment data also lower the bar for a rate hike, less because they suggest a risk of overheating than because a stronger starting point for the economy reduces the risk that a hike could end up looking like a costly mistake." The note also stated that while additional rate hikes remain unlikely, they are now slightly more plausible than the firm previously thought.
Conditions for eventual cuts
The brokerage outlined the factors it sees as necessary before the Fed would commence cuts: waning effects from tariffs, a subsiding of higher oil prices linked to the Iran conflict and other war-related pressures, a move toward year-over-year core PCE inflation closer to the 2% target, and a moderation in demand that Goldman characterizes as overstated and driven by AI-related activity.
Market odds and peer views
Goldman joins other institutions forecasting a lengthy pause in Fed easing. The firm specifically noted that Nomura last month also projected the Fed would remain on hold through 2026. Meanwhile, market-implied probabilities from the CME FedWatch tool show traders assigning a 75.5% probability that the central bank will deliver rate hikes by the end of the year.
Analysis complete. No additional commentary included.