Goldman Sachs drops call for December Fed rate cut

What the desk is arguing

The desk views Goldman Sachs's new Fed outlook as indicative of a steadying monetary environment, signaling the likelihood of prolonged high rates amid a solid labor market. Per the full note source, this pivot from a December cut to mid-2027 aligns with persistent employment growth trends, suggesting the Fed may not respond to inflation pressures until well into 2027.

The adjustment explicitly highlights the recent jobs report showing stronger-than-expected gains, with unemployment remaining low at 3.5%. Such statistics imply that upward wage pressures and consumer spending may continue to complicate the Fed's easing path, forcing a reassessment of rate cut timelines.

Where it sits in our coverage

Our consensus target for USD is 1.075, within a range of 1.04 to 1.12, with firms like jpmorgan projecting a target of 1.10 by March 2026 and bofa sitting at 1.04 for the same period. This aligns with the view that a robust labor market will sustain the dollar's strength against other currencies, with Goldman’s new stance reinforcing existing projections of steady rates.

Given Goldman Sachs's bearish adjustment on rate cuts, its view diverges from others currently leaning towards more earlier cut scenarios, with their forecast potentially positioned at the upper bound of the spectrum we see across these firms.

How other firms see it

The jpmorgan and citi outlooks mirror Goldman’s more cautious approach, suggesting a later easing path due to robust economic data. In contrast, bofa continues to advocate for a more aggressive easing timetable, anticipating cuts beginning as soon as December 2026.

Watch the EUR/USD as this rate outlook could directly impact its trajectory, especially if Eurozone indicators start diverging from U.S. labor market strength, highlighting relative strength between the two economies.