Goldman Sachs drops call for December Fed rate cut
Goldman Sachs has revised its projections for Federal Reserve rate cuts, now anticipating no cuts until June 2027, as indicated in their recent analysis source. This shift is primarily influenced by a stronger-than-expected jobs report and persistently low unemployment figures, pointing towards a resilient labor market. The desk interprets this revision as a potential signal of more prolonged monetary policy stability than previously expected, which could keep the dollar stronger against its peers in the medium term. With the Fed currently in a blackout period ahead of next Wednesday's FOMC meeting, traders are cautious but vigilant for the implications of any signals from incoming Fed personnel like Kevin Warsh.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Goldman Sachs shifts its Fed rate cut forecast, delaying cuts to mid-2027.
- 02The rationale includes unexpectedly robust job growth and low unemployment.
- 03This perspective indicates strong dollar performance amid steady Fed policy.
- 04Monitoring upcoming Fed communications is crucial for market positioning.
Market implications
Traders should focus on the upcoming FOMC press conference to gauge the Fed's outlook on inflation and labor markets, especially as it may perform a key role in influencing USD pairs. A strong print in job growth could further bolster the dollar's case for staying strong against major currencies.
Risks to this view
Any indication from the Fed about substantial inflationary pressures or a change in employment trends could invalidate Goldman’s call, leading to earlier rate cuts and a weaker dollar scenario. Additionally, geopolitical or economic shocks could also disrupt these projections.
Goldman Sachs is changing its Fed call. Previously, they saw the Federal Reserve cutting rates in December and then again in March 2027. Now they see the Fed holding rates steady until cuts in June 2027 and December 2027.
They cited Friday's jobs report and still-low unemployment. The market, meanwhile, is pricing in a hike in December and a good chance it could come as soon as September. The Fed is in the blackout period now and until next Wednesday's FOMC, which is when we will get the first press conference from Kevin Warsh.
This article was written by Adam Button at investinglive.com.
Sources & References
How we cover this story