Goldman Sachs now expects the Federal Reserve to delay interest rate cuts until 2027 [1].
This shift in forecasting suggests the U.S. economy remains resilient enough to withstand higher borrowing costs for a longer period. If the Federal Reserve maintains current rates through 2026, it could signal a prolonged effort to curb inflation despite potential pressures on consumers and businesses.
Jan Hatzius, chief economist at Goldman Sachs, said the implications of the June non-farm payroll report during an appearance on CNBC’s “Squawk on the Street” [2]. The report, released June 7, 2024, served as the catalyst for the firm's updated outlook [3].
While the firm noted that the report showed strong job growth, Hatzius also highlighted volatility in the data. He said the June jobs revision was the largest since 1968 [4]. This specific data point indicates a significant adjustment in how previous employment gains were recorded, a level of revision not seen in over five decades [4].
Interpretations of the labor market's health remain divided among analysts. Some reports suggest the June payrolls data supports the view that the Fed can keep rates higher for longer due to robust growth [3]. Conversely, other assessments have described the current jobs market as the worst seen outside of a recession in 50 years, pointing toward weakening labor trends [5].
Despite these contradictions, Goldman Sachs has aligned its current projection with a more restrictive monetary policy. The firm expects the Federal Reserve to keep rates unchanged through 2026 [1]. This timeline suggests that the central bank may prioritize inflation targets over the immediate relief of lower rates for several more years [1].
“Goldman Sachs expects the Federal Reserve to keep rates unchanged through 2026”
The projection that rate cuts will not arrive until 2027 represents a significant hawkish shift in expectations. By linking this delay to the June jobs report, Goldman Sachs is arguing that the labor market is not cooling fast enough to justify a pivot in policy. This creates a tension between the reported 'strong growth' and the 'worst market outside a recession' narrative, suggesting that while headcount may be increasing, the quality or stability of those jobs may be fluctuating.
