The bank now expects the Fed's next two cuts to come in June and December 2027, after May jobs growth cleared forecasts by a wide margin
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The revision followed a stronger-than-expected U.S. jobs report for May. Goldman Sachs chief U.S. economist David Mericle cited the resilient labor market in a note published Friday, according to Bloomberg. At the same time, Goldman doubled its estimated odds of modest rate hikes to 20%, up from 10%, even as it stopped short of calling a hike its base case.
"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," the bank said in its note.
On the question of timing, Goldman told clients that rate reductions should wait until tariff-related disruptions, oil price pressures stemming from the Iran conflict, and what the bank views as inflated AI demand have all subsided, and until year-over-year core PCE inflation closes in on 2%. Even within its own baseline, Goldman expressed limited conviction, attaching just 30% odds to the two-cut scenario for 2027 compared with 40% before.
Nomura is among the firms that reached a similar conclusion, having forecast last month that the Fed would stay on hold for all of 2026.
The May jobs report that prompted the revision showed the U.S. economy added 172,000 nonfarm payroll jobs, well above the roughly 80,000–85,000 that economists had projected. The unemployment rate held at 4.3% for a third consecutive month. The Fed has kept its benchmark rate in the 3.50%–3.75% range since trimming borrowing costs by three-quarters of a point late in 2025.
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