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Goldman Sachs Research has pushed back its forecast for the Federal Reserve’s next interest-rate cuts, arguing that stronger-than-expected economic growth and a resilient labor market leave little urgency for policymakers to begin easing monetary policy.
The investment bank now expects the Fed to deliver its final two rate cuts of the current cycle in June and December 2027, compared with its previous forecast for cuts in December 2026 and March 2027.
The revised outlook reflects growing confidence that the U.S. economy can withstand higher borrowing costs for longer than previously anticipated.
Strong Labor Market Supports the Fed’s Wait-and-See Approach
According to Goldman Sachs, recent economic data have consistently surprised to the upside, particularly in the labor market.
Job growth has remained robust, while unemployment continues to hover near historically low levels. Although economists expect the unemployment rate to rise slightly from 4.3% in May to around 4.4% later this year, the increase is not expected to be significant enough to create pressure on the Federal Reserve to lower interest rates.
The firm believes current labor market conditions provide policymakers with room to remain patient while monitoring inflation developments.
Inflation Remains Above Target
Despite progress in bringing inflation down from previous highs, price pressures remain elevated compared with the Federal Reserve’s 2% target.
Goldman Sachs expects the combined effects of tariffs, higher oil prices, ongoing geopolitical tensions in the Middle East, and strong demand linked to artificial intelligence investments to keep inflation relatively firm throughout 2026.
As a result, policymakers are likely to wait until inflation moves much closer to target before considering further policy easing.
Why the Fed Is Expected to Stay on Hold
Goldman Sachs argues that the most likely path for the Federal Open Market Committee is to keep rates unchanged until temporary inflationary forces begin to fade.
While some of the inflationary impact from tariffs may gradually diminish, other factors—including energy prices and AI-related investment demand—are expected to continue supporting price pressures for much of the year.
The firm expects core inflation to remain above 3% through 2026, reducing the likelihood of near-term rate cuts.
Rate Hikes Remain a Possibility
Although Goldman Sachs still expects the next move in interest rates to be lower, the firm acknowledges that the possibility of additional rate hikes has increased slightly.
Several Federal Reserve officials have recently adopted a more hawkish tone, indicating that further tightening could be considered if inflation worsens.
At the same time, stronger economic growth and resilient employment conditions reduce the risk that maintaining or even raising rates would significantly harm the economy.
However, Goldman Sachs continues to view additional hikes as a less likely scenario than an extended pause.
Inflation Could Move Closer to 2% in 2027
Looking beyond the near-term outlook, Goldman Sachs expects inflation to moderate further in 2027.
The firm points to softer wage growth and slowing housing-related inflation as signs that underlying price pressures are easing. Assuming no major new supply shocks emerge, economists believe inflation could move close to the Federal Reserve’s 2% target next year.
Such a development would create conditions that allow policymakers to begin lowering interest rates.
AI Investment Is Emerging as a Key Factor
Goldman Sachs also highlighted the growing influence of artificial intelligence on the U.S. economy.
Strong investment in AI infrastructure and technology projects is supporting economic activity and may be contributing to stronger growth than many economists previously expected. Some policymakers may view this investment boom as a reason to maintain higher interest rates for longer.
The debate over how AI-driven growth affects monetary policy is expected to become increasingly important in future Federal Reserve discussions.
Goldman Sachs Forecast: First Cut in June 2027
For now, Goldman Sachs expects the Federal Reserve to keep its benchmark interest rate unchanged throughout 2026 before delivering rate cuts in June and December 2027.
The forecast reflects an economy that remains resilient despite elevated borrowing costs and inflation that, while gradually easing, is still not close enough to the central bank’s target to justify immediate policy easing.
Unless economic conditions weaken significantly or inflation falls faster than expected, Goldman Sachs believes the Federal Reserve will remain firmly on hold for the foreseeable future.
