Goldman Sachs pushes Fed rate cut forecast to December 2026

⦿ Executive Snapshot

What: Goldman Sachs has revised its forecast for the next Federal Reserve rate cut to December 2026.
Who: Goldman Sachs, Federal Reserve, economic team led by Jan Hatzius.
Why it matters: The revision reflects persistent inflation and a resilient jobs market, impacting Treasury yields and economic conditions.

Goldman Sachs pushed back its rate cut forecast to December 2026, from a prior estimate of September 2026.
The revision is based on a stronger-than-expected April jobs report, indicating robust hiring trends.
Goldman expects PCE inflation to remain around 3% through 2026, which is above the Fed's 2% target.
The bank's terminal rate forecast remains unchanged at 3% to 3.25%, implying a slower easing path than previously anticipated.
Goldman also reduced its estimate for the probability of a US recession over the next 12 months, suggesting economic resilience.

The delay in rate cuts reflects ongoing inflationary pressures driven significantly by rising energy costs, particularly due to geopolitical tensions.
This forecast fits into a broader narrative of the Fed's cautious approach to monetary policy amid persistent inflation and a resilient labor market.

The immediate consequence is upward pressure on Treasury yields, as the market adjusts to a prolonged period of Fed rate holds.
Long-term operational implications include potential impacts on rate-sensitive sectors and corporate borrowing costs, as the easing cycle may be shallower than expected.

Potential risks include unforeseen regulatory actions or changes in economic conditions that could affect inflation or employment rates.
Competition from other financial institutions or shifts in market sentiment could also influence the effectiveness of Goldman Sachs' projections.

Upcoming economic data releases, particularly concerning inflation and employment, will be critical in assessing the validity of Goldman's forecast.
Any further escalations in geopolitical tensions, particularly in the energy sector, could signal changes in financial conditions and impact the timeline for rate cuts.