Goldman Sachs has significantly pushed back its expectations for Federal Reserve interest rate cuts, now forecasting that the U.S. central bank will keep the benchmark federal funds rate unchanged throughout all of 2026, with the first easing not coming until mid-2027. This updated outlook, released following a surprisingly strong U.S. jobs report, suggests that a prolonged period of tight monetary policy is likely as the Fed continues to battle persistent inflation and a resilient labor market.
The investment bank's economists previously anticipated two quarter-point rate cuts – one in December 2026 and another in March 2027 – but now see the Fed holding its target range steady at 5.25%–5.50% through the entirety of next year. The new projection pencils in the first reductions only in June and December 2027. According to Goldman, the strength in payrolls and consumer spending gives policymakers room to wait, even as households and businesses face headwinds from tariffs, elevated energy costs, and geopolitical tensions in the Middle East.
The revision reflects a broader rethink of the inflation trajectory. Goldman expects the Fed to keep policy on hold until the effects of trade costs, higher oil prices linked to the Iran conflict, and other supply shocks fade from the data, and until the core PCE inflation gauge – the Fed's preferred measure – moves closer to the 2% target. The bank also noted that any future rate hike, while not its base case, has become slightly more plausible because a stronger economic starting point would make tightening less likely to be viewed as a policy error.
Goldman is not alone in its hawkish shift. Nomura recently forecast a similar pause through 2026, and CME FedWatch data now shows traders assigning a 75.5% probability to rate hikes by year-end. For financial markets, the prospect of a longer pause means that expectations for a near-term pivot to looser policy will need to be recalibrated, potentially increasing volatility in stocks, bonds, and risk assets like cryptocurrencies. Elevated borrowing costs for mortgages, auto loans, and credit cards are also expected to persist, weighing on consumer demand and housing activity, while savers continue to benefit from higher yields.
