Goldman Sachs has shifted its forecast regarding the Federal Reserve's timeline for rate cuts. The bank now predicts that the first reduction in interest rates will occur no earlier than June 2027, which is a significant delay from its previous estimate of December 2026.
This change follows a robust jobs report released in May 2026 that greatly exceeded Wall Street expectations. The report showed nonfarm payrolls rising by 172,000, significantly higher than the anticipated range of 80,000 to 89,000 jobs. Additionally, the unemployment rate remained stable at 4.3%, further solidifying the case for a cautious monetary policy.
How does Goldman Sachs foresee the changes in monetary policy?
David Mericle, the chief U.S. economist at Goldman Sachs, outlined the revisited projections. The revised forecast now anticipates two rate cuts of 25 basis points each in 2027—one cut in June and another in December. This totals a reduction of 50 basis points but indicates no monetary policy accommodation until after 2026.
Previously, Goldman had set expectations for cuts beginning in December 2026, but this update effectively pushes any anticipated relief further into the future. In tandem with this update, Goldman has increased its estimated probability of further rate hikes from 10% to 20%. The terminal rate is expected to remain in the 3.0% to 3.25% range. Currently, the Federal Reserve's policy rate sits between 3.50% and 3.75%, unchanged since the last cuts in late 2025.
What other firms share this outlook?
Goldman Sachs is not the sole institution to adjust its expectations. Nomura had already signaled an outlook of no Fed rate cuts through 2026 prior to the release of the May jobs data.
How might this impact crypto and risk assets?
The scenario that Goldman considers most likely involves potential rate hikes, which it assigns a 20% probability. Should the Federal Reserve choose to increase rates above 3.75%, this could tighten financial conditions and lead to a withdrawal of capital from speculative assets, including cryptocurrencies and high-risk investments.