Investment banking giant Goldman Sachs has shifted its Federal Reserve interest rate predictions further into the future, now anticipating the central bank will maintain current borrowing costs through 2026 before implementing reductions in 2027, the firm announced Friday following robust employment data.
The financial institution now projects interest rate decreases in June and December of 2027, replacing its previous timeline that called for 25-basis-point cuts in December 2026 and March 2027.
This revised outlook stems from employment figures that exceeded expectations, demonstrating continued strength in the job market and providing the Federal Reserve additional flexibility to maintain current rates even as inflationary concerns persist due to Middle East tensions.
Goldman Sachs has joined other financial firms anticipating an extended period without rate adjustments, including Nomura, which projected last month that the Fed would maintain its current position through 2026.
“The resilient activity and employment data also lower the bar for a rate hike, less because they suggest a risk of overheating than because a stronger starting point for the economy reduces the risk that a hike could end up looking like a costly mistake,” Goldman said in a note.
The investment bank noted that while increases in borrowing costs remain improbable, such moves are somewhat more conceivable than before.
Goldman Sachs indicated it now anticipates the Fed will postpone rate reductions until the impact of tariffs, elevated oil costs related to the Iran conflict and other war-related economic pressures diminish, and until annual core PCE inflation approaches the 2% goal, combined with a decline in what it considers inflated AI-driven demand.
Market participants anticipate the central bank will implement rate increases with a 75.5% likelihood before year-end, based on the CME FedWatch tool.
