Goldman Sachs Pushes Fed Rate Cut Forecast to 2027 as Strong Jobs Data Reinforces Higher-for-Longer Outlook
Goldman Sachs has revised its U.S. monetary policy outlook again, pushing its expected Federal Reserve rate cuts into 2027 after stronger-than-expected labor market data reduced the case for easing this year. The investment bank now expects the Federal Reserve to keep interest rates unchanged through the remainder of 2026, with the first 25-basis-point rate cut projected for June 2027 and a second reduction expected in December 2027. This replaces Goldman’s previous forecast, which had anticipated cuts in December 2026 and March 2027.
Strong Jobs Data Changes the Policy Calculation
The U.S. economy added 172,000 jobs in May, while the unemployment rate remained unchanged at 4.3% — well above market expectations and following upward revisions to previous months. A resilient labor market reduces the urgency to cut rates. Goldman also lowered its unemployment rate forecast to 4.4% from 4.6%.
Inflation Remains Too High for Early Easing
Core PCE inflation rose 3.3% year-on-year in April, up from 3.2% in March, remaining well above the Fed’s 2% target. Persistent inflation pressures have been reinforced by resilient consumer demand, elevated energy prices, tariff-related cost pressures, and broader cost factors. The current federal funds target range remains at 3.50% to 3.75%.
Rate Hike Risk Moves Back Into the Discussion
A rate hike is not Goldman’s base case — the central forecast is for the Fed to remain on hold through 2026 before cutting in 2027. However, the bank reportedly increased its subjective probability of a modest rate hike to 20% from 10%. Fed funds futures have repriced toward a higher-for-longer path.
AI Investment Adds to Economic Resilience
Large-scale spending on AI infrastructure, data centers, semiconductors, and cloud computing is helping sustain capital expenditure even as borrowing costs remain elevated. Strong AI investment supports demand and reduces the need for monetary stimulus, strengthening the case that the Fed can afford to wait.
Market Implications
Delayed rate cuts imply Treasury yields may stay elevated for longer, particularly at the front end. Equities face a mixed impact — strong growth supports earnings but prolonged elevated rates pressure valuations. The U.S. dollar may keep its rate-differential support. Borrowing costs likely remain elevated through most or all of 2026.
Outlook
The combination of strong job creation, low unemployment, sticky core inflation, and continued investment activity has weakened the case for rate cuts in 2026. The next policy move will be a delayed cut in 2027 — or, if inflation reaccelerates, policymakers may have to consider a more hawkish path. Key variables to watch: core PCE, wage growth, labor market momentum, energy prices, and Fed communications.
Sources: Goldman Sachs Research, Reuters, Federal Reserve communications, FRED, U.S. Bureau of Labor Statistics, Bureau of Economic Analysis, CME FedWatch, market data as of June 2026.
