Goldman Sachs shifts Fed forecast, saying it now sees no rate cut this year

Goldman Sachs economists said they no longer expect the Federal Reserve to cut interest rates this year, a change they linked to recent labor-market strength that has complicated the case for near-term monetary easing. The revision, reported Sunday, came as Goldman adjusted its probabilities for different policy paths following U.S. employment data that it described as beating expectations.

In the firm’s updated outlook, Goldman pushed back the timing of what it called the final two rate cuts to June and December 2027, from an earlier projection of December 2026 and March 2027. The shift implies a longer period of holding policy at a restrictive stance, even as the market debate has increasingly turned to whether policymakers will need to raise rates further or simply stay on hold.

The move was attributed to stronger-than-expected labor-market conditions. Goldman’s U.S. chief economist, David Mericle, discussed the rationale in a note dated Friday, according to a Bloomberg report carried by Diario Financiero. The same report said the change followed May employment growth that topped forecasts, reinforcing the view that hiring and wage pressures could keep the economy sufficiently hot to delay easing.

Even with the delay in cuts, Goldman did not predict a rate hike as its base case. The report said the bank still viewed a Fed increase as unlikely, but it raised the likelihood of “moderate” rate increases to a range of 10% to 20%. By comparison, investors had been pricing a quarter-point increase by December, highlighting how quickly expectations can move when macro data surprise to the upside.

Goldman also altered its probability-weighted baseline. Under the bank’s base case, it still expected two quarter-point cuts next year, but it assigned that outcome a 30% probability, down from 40% previously, according to the report. It also said a longer pause with a flatter rate path remained a plausible alternative, reflecting uncertainty around how long inflation risks might persist and how quickly cooling labor conditions could emerge.

Beyond the rate-timing call, Goldman revised its labor outlook. The report said it lowered its unemployment-rate forecast to 4.4% for the year, from 4.6% previously. It also described the Federal Reserve’s longer-run policy projections as broadly stable over the past year, with most participants still portraying policy as slightly restrictive while expecting “normalization” once inflation declines.

The background to Goldman’s recalibration is that interest-rate expectations are a key input across financial markets. When a major bank moves its forecast for the federal funds rate path, it can ripple through bond yields, mortgage and loan pricing, and equity valuation assumptions tied to the discount rate. For Goldman itself, changes in the timing of rate cuts can also affect client activity across fixed income, derivatives, and capital-markets trading, where the distribution of outcomes matters as much as the point forecast. Separate Goldman research published earlier has outlined a framework in which easing depends on both inflation cooling and evidence of labor-market softening, including the idea that the Fed could pause before resuming cuts later in the year.

Still, several details remain out of reach from the publicly reported summary. The Bloomberg text carried by Diario Financiero does not publish the underlying model assumptions or the full probability table behind Goldman’s “base” and alternative rate paths. It also does not specify whether Goldman expects any additional communication from the Fed that could shift the balance of risks. What is clear is only the direction of the forecast change, the revised cut timing, and the broad probabilities assigned to policy outcomes.