Goldman Sachs signals Fed rate cut move

Goldman Sachs Revises Fed Rate Cut Forecast

In 2026, markets were eagerly anticipating the Federal Reserve to deliver rate cuts that Goldman Sachs had been forecasting for December 2026 and March 2027. However, on June 6, following the release of the May jobs report, which exceeded all economists' expectations, Goldman Sachs removed both dates from its forecast entirely. The bank's new message is clear: no rate cuts this year, and a significant chance that the Fed's next move could be a rate hike rather than a cut.

What Goldman Sachs Said About the Fed and What Changed Its Forecast

Goldman Sachs chief U.S. economist David Mericle published a note on June 6 that revised the bank's previous forecasts. According to Bloomberg, the note removed the two 2026 rate cut calls and replaced them with two quarter-point reductions in June and December 2027. This shift represents a full six-month delay from the prior timeline.

The trigger for this change was the May employment report, which showed the U.S. economy adding 172,000 nonfarm payroll jobs, significantly higher than the 80,000 to 85,000 economists had projected. The unemployment rate remained at 4.3% for a third consecutive month, leading Goldman to conclude that the data provided no reason for the Federal Reserve to ease policy this year, as reported by Investing.com.

Mericle went beyond just adjusting the timeline. Goldman Sachs increased its estimated probability of a modest rate hike to 20%, up from 10% previously. While the bank did not make a hike its base case, this shift indicates that the distribution of possible Fed outcomes is moving in a more hawkish direction, according to Bloomberg.

What Goldman Said Must Happen Before the Fed Cuts Rates

Goldman’s note outlined specific conditions that would need to be met before the Fed would consider cutting rates. Mericle stated that rate reductions should wait until four factors converge:

• Tariff-related disruptions ease.
• Oil price pressures from the Iran conflict subside.
• What Goldman views as inflated AI demand normalizes.
• Year-over-year core PCE inflation moves closer to 2%.

Goldman's confidence in its revised forecast is limited, assigning only 30% odds to its two-cut 2027 scenario, down from 40% previously. The remaining 70% of the probability distribution includes outcomes ranging from no cuts at all to a modest hike.

Why the May Jobs Report Was a Bigger Surprise Than It Seemed

The gap between the 172,000 jobs added in May and the 80,000 to 85,000 economists had projected is not a normal miss. It is more than double the consensus estimate. This magnitude matters because it suggests the Fed's restrictive policy is having less impact on the labor market than models implied, directly undermining the case for easing.

The Federal Reserve has kept its benchmark rate in the 3.50% to 3.75% range since trimming borrowing costs by three-quarters of a point in late 2025. The May jobs data suggests that level of restriction is not producing the labor market cooling the Fed would typically want to see before cutting, as noted by Bloomberg.

Goldman is not alone in reading it that way. Nomura had already forecast the Fed would hold through all of 2026. Bond markets moved in the same direction as Goldman's note, with investors pricing in a quarter-point Fed hike by December following the May jobs report. The Nasdaq 100 fell 5% on the day the data were released, as reported by Investing.com.

Key Figures from Goldman's June 6 Fed Forecast Revision

Goldman's previous forecast called for quarter-point cuts in December 2026 and March 2027; both have been removed and replaced with quarter-point cuts in June and December 2027. The shift represents a full six-month delay from the prior timeline, according to Bloomberg.

Goldman assigns 30% odds to its two-cut 2027 scenario, meaning the bank's base case carries only slightly better than coin-flip confidence. The remaining 70% includes no cuts, one cut, or a modest hike, as confirmed by Investing.com.

The four conditions Goldman requires before cutting are: tariff disruptions ease, Iran war oil pressure subsides, what Goldman calls inflated AI demand normalizes, and year-over-year core PCE inflation approaches 2%. None of these are currently met, as reported by Investing.com.

What Goldman's Fed Forecast Change Means for Investors in Stocks and Bonds

The direct market implication of Goldman's revision is that the interest-rate environment investors had been pricing as temporary is now expected to persist into 2027. That has specific consequences for equities.

Technology and growth stocks face a longer wait for the valuation support that rate cuts would provide. The 5% Nasdaq decline on the day of the jobs report is the most immediate expression of that dynamic.

For fixed income investors, Goldman's note reinforces the case for shorter-duration positioning. Bonds with longer maturities are more sensitive to rate expectations, and a 20% probability of a hike removes the tailwind supporting longer-dated Treasuries.

The yield on the 10-year Treasury has been moving higher in anticipation of exactly this kind of revision.

The broader question the note raises is whether the May jobs report is a one-month anomaly or a signal that the U.S. economy's resistance to monetary tightening is more durable than Goldman's previous models assumed.

If 172,000 jobs in May is followed by similarly strong June and July readings, Goldman's 2027 cut timeline may need another revision. Mericle's note acknowledges that possibility, which is why the bank assigns only 30% confidence to its own baseline.