In a significant shift, Goldman Sachs has revised its outlook for Federal Reserve monetary policy, pushing back the expected start of an interest rate easing cycle from March to June 2026. The bank now projects two measured rate cuts of 25 basis points each, one in June and a second in September, altering its previous forecast for cuts beginning in the first quarter.
The revision is driven by stronger-than-anticipated U.S. economic data, including resilient consumer spending, a robust labor market, and inflation cooling faster than expected without damaging growth momentum. Goldman Sachs economists, led by chief U.S. economist David Mericle, cited these factors as giving the Fed more flexibility to adopt a patient approach. "Following the latest employment report, we expect the Fed to wait until mid-year to cut interest rates as inflation falls toward its target level and the job market stabilizes," Mericle stated.
The bank's updated projections also reflect increased confidence in the economy's ability to avoid a sharp slowdown. Goldman Sachs has reduced its estimate of the risk of a U.S. recession by approximately 10%, citing continued strong underlying fundamentals such as positive wage growth, upside corporate earnings surprises, stabilizing manufacturing, and strong demand for services.
Goldman Sachs forecasts the federal funds rate to end 2026 in a range of 3% to 3.25%, indicating a slower path to normalization than previously expected. This outlook suggests policymakers aim to keep rates restrictive enough to manage inflation while avoiding unnecessary pressure on growth. The bank noted that improved financial market conditions and well-functioning credit markets lessen the immediate need for aggressive monetary intervention.
For businesses and consumers, the delayed easing implies financing costs may remain elevated for a longer period, potentially affecting capital spending decisions and keeping mortgage and credit rates high through mid-2026. However, Goldman Sachs argues that this measured, strategic approach supports sustainable economic expansion and reduces the risk of economic shocks compared to more rapid stimulus.
