BY EMMANUEL OGBONNA
Goldman Sachs has pushed back its expectations for when the U.S. Federal Reserve will begin cutting interest rates, now forecasting that policymakers will deliver two quarter-point reductions in June and September 2026 rather than earlier moves previously penciled in for March and June.
The revised outlook follows the release of softer-than-expected U.S. non-farm payrolls data and reflects growing evidence that the labor market is gradually losing momentum. At the same time, Goldman’s economists pointed to stronger-than-anticipated economic growth and the diminishing influence of earlier tariff-related price pressures as factors shaping the Fed’s more cautious path.
In a note released Sunday, the bank said recent data suggest the central bank will likely wait until the middle of next year before easing policy, allowing more time for inflation to continue cooling toward its long-term target while employment conditions stabilize.
“After the latest payrolls report, we see the Fed waiting until mid-year to cut as inflation falls toward the target and the labor market finds its footing,” the bank said.
Under its updated projections, Goldman now expects the federal funds rate to end 2026 in a range of 3% to 3.25%, signaling a slower and more measured easing cycle than previously anticipated. The firm also reduced its estimated probability of a U.S. recession over the next 12 months to 20%, down from an earlier assessment of 30%, citing resilient economic activity despite emerging signs of labor market softness.
Goldman said the adjustment to its rate-cut timeline reflects what it described as meaningful economic progress during 2025 that was partially obscured by temporary factors, including a moderate, one-off boost linked to tariffs. As those effects fade, underlying trends are becoming clearer, particularly in employment data.
While the labor market appears to be stabilizing, Goldman cautioned that it remains vulnerable to further cooling. Job growth has slowed from earlier highs, and wage pressures are easing, developments that could support the case for rate cuts later in 2026 if inflation continues to move lower.
The updated forecast underscores the delicate balance facing the Federal Reserve as it weighs signs of moderating inflation against the risk of tightening financial conditions for too long. With economic growth proving more resilient than many expected, Goldman’s analysis suggests policymakers will prioritize confirmation that inflation is firmly on track toward target before moving to ease rates.
Markets will now closely watch upcoming inflation and employment data for clues on whether the Fed’s cautious stance holds, or whether a faster deterioration in labor conditions could prompt a shift in expectations once again.
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