Goldman Sachs has pushed back its forecast for U.S. interest rate cuts, saying the Federal Reserve is likely to keep rates unchanged through 2026 following stronger-than-expected economic and employment data.
The brokerage now expects the Fed to cut rates in June and December 2027, instead of its earlier forecast for 25-basis-point reductions in December 2026 and March 2027.
Strong Jobs Data Prompted the Shift
The revised outlook follows a robust U.S. payrolls report, which pointed to renewed strength in the labour market.
According to Goldman Sachs, the stronger economic backdrop gives the Fed greater flexibility to maintain current rates despite inflationary pressures stemming from rising oil prices and geopolitical tensions in the Middle East.
Higher Rates May Persist Longer
Goldman joins a growing number of firms expecting an extended pause in monetary policy.
Last month, Nomura also projected that the Fed would keep rates on hold through 2026.
In a note, Goldman said resilient growth and employment reduce the risks associated with keeping rates elevated.
“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,” Goldman said.
The brokerage added that while additional rate hikes remain unlikely, they are now viewed as slightly more plausible than before.
Inflation Concerns Remain
Goldman expects the Fed to delay easing until several factors begin to fade, including:
- The impact of tariffs.
- Higher oil prices linked to the Iran conflict.
- Other war-related pressures.
- Elevated demand associated with artificial intelligence.
The brokerage said it expects rate cuts only after year-on-year core PCE inflation moves closer to the Fed’s 2% target.
Markets Are Pricing in Further Tightening
According to the CME FedWatch Tool, traders currently assign a 75.5% probability to at least one Federal Reserve rate hike by the end of the year.
TL;DR
Goldman Sachs now expects the Federal Reserve to keep interest rates unchanged through 2026 and begin cutting rates only in 2027. The change follows stronger U.S. jobs data and continued inflation concerns linked to tariffs, higher oil prices and geopolitical tensions.
AI Summary
- Goldman Sachs delayed its Fed rate-cut forecast to 2027.
- The brokerage now expects no rate cuts through 2026.
- Strong U.S. jobs data prompted the revision.
- Goldman said the possibility of further rate hikes has increased slightly.
- Traders see a 75.5% chance of a rate hike by year-end.
