Goldman Sachs has made a significant change to its predictions for Federal Reserve rate cuts. The bank has abandoned its 2026 forecast and now anticipates easing will occur in 2027. This adjustment stems from a stronger-than-expected jobs report from May, which complicates the case for the Federal Reserve to cut rates anytime soon.
The bank's updated forecast now includes two cuts of 25 basis points scheduled for June and December 2027, superseding its earlier expectations of cuts occurring in December 2026 and March 2027. This marks the third revision this year for Goldman, demonstrating a cautious shift in response to economic indicators.
#What job data prompted this change in forecast?
The nonfarm payroll results for May showed the US economy added 172,000 jobs, significantly higher than the predicted 80,000 to 85,000. Meanwhile, the unemployment rate remained stable at 4.3%. This robust job growth prompts questions about the economic outlook and the Fed’s ability to ease monetary policy in the near future.
Currently, the Fed’s target interest rate range is between 3.50% and 3.75% after a series of reductions in late 2025 when the economic indicators were less favorable. Goldman Sachs revised its forecast to reflect a more robust economic environment.
#Why is inflation a barrier to any rate cuts?
Goldman’s repeated adjustments to the timeline for rate cuts are largely attributable to persistent inflation, which continues to elude the Fed’s 2% target. Reducing interest rates while inflation remains high poses a risk of reigniting inflationary pressures that the central bank has worked hard to control. At the same time, maintaining elevated rates could undermine labor market stability and might lead to a recession.
#How do these forecasts impact crypto and risk assets?
The revised forecast from Goldman Sachs removes a crucial bullish catalyst that cryptocurrency traders expected in the latter half of 2026. If the market had initially priced in potential rate cuts, it now faces the necessity for recalibration. Additionally, the revised 20% probability of rate hikes raises concern among crypto investors. While hikes may be less likely, a major bank's adjustment of this probability reflects a shifting risk landscape.
Higher interest rates can have indirect effects on the crypto sector as well. For instance, funding through venture capital for blockchain initiatives often diminishes when capital costs rise. Furthermore, yields in decentralized finance may struggle to compete against higher risk-free rates, impacting overall investment in the sector.