Goldman Sachs pushes Fed rate cut forecast to December 2026
The desk interprets Goldman Sachs' revised forecast for the Federal Reserve's rate cuts, now projected for December 2026, as a significant indicator of sustained inflationary pressures and a robust labor market. Per the full note source, Goldman cites persistent inflation near 3%, driven by rising energy costs, as a key factor in delaying rate cuts. This shift suggests a more cautious approach from the Fed, which could keep upward pressure on Treasury yields and impact rate-sensitive sectors. The desk highlights that Goldman's terminal rate forecast remains unchanged at 3% to 3.25%, indicating a shallower easing path than previously anticipated by the market.
What the desk is arguing
Goldman Sachs has delayed its forecast for the next Federal Reserve rate cut to December 2026, pushing back from September 2026, after two consecutive strong US jobs reports reinforced the case for the Fed to keep policy on hold. The revision centers on inflation running well above the Fed's 2% target, with PCE inflation expected to hover near 3% through 2026, driven partly by energy costs that have surged 35-45% since the escalation of the Iran conflict.
The bank argues that energy price pass-through into broader price measures has not yet given the Fed sufficient grounds to ease, with March headline PCE at 3.5% YoY and core PCE at 3.2% YoY. Personal spending rose 0.9% in March, pointing to persistent consumer demand that keeps the labor market resilient, further delaying the start of the easing cycle.
By moving the cut forecast to December 2026, Goldman implicitly rejects the market's expectation of a faster and deeper easing cycle, instead projecting a slower and shallower path with the terminal rate unchanged at 3%-3.25%.
Key takeaways
- 01Goldman Sachs now expects first Fed cut in December 2026 vs prior September 2026.
- 02Terminal rate unchanged at 3-3.25% implies shallower easing than markets priced.
- 03Core PCE inflation held at 3.2% YoY; energy costs add upward pressure.
Market implications
The delay in Fed rate cut expectations is a tailwind for the US dollar, especially against low-yielding currencies. For EUR/USD, higher-for-longer US rates support the dollar, capping the pair's upside. Tighter US monetary policy versus the ECB's nearing inflection point may keep EUR/USD below 1.10 near term. Emerging market currencies face additional headwinds as US yield advantage persists.
Risks to this view
Upward risk to USD if inflation stays sticky and Fed delays further; downside risk if energy prices collapse or jobs data soften, pulling cuts forward. Conflict escalation sustaining high oil prices is key upside risk to inflation and USD strength.
Goldman Sachs has pushed its Federal Reserve rate cut forecast back to December 2026, citing sticky inflation near 3% and a resilient jobs market, with its terminal rate view held at 3% to 3.25%. Summary: Goldman Sachs shifted its forecast for the next Fed rate cut to December 2026, pushed back one quarter from its prior call of September The revision followed a stronger-than-expected April jobs report, the second consecutive month of above-forecast hiring Goldman expects PCE inflation to remain near 3% through 2026, well above the Fed's 2% target, with energy costs feeding into broader prices The bank's terminal rate forecast was left unchanged at around 3% to 3.25%, implying a slower and shallower easing path than markets had anticipated Goldman also lowered its estimate for the probability of a US recession over the next 12 months alongside the rate call revision Goldman Sachs has pushed back its forecast for the next Federal Reserve rate cut to December 2026, a one-quarter delay from its prior call, after a second consecutive month of stronger-than-expected US jobs growth reinforced the case for the central bank to keep policy on hold. The revision, led by Goldman's economics team under Jan Hatzius, centres on inflation that continues to run well above the Fed's 2% target.
The bank expects PCE inflation to hover near 3% through 2026, driven in significant part by energy costs that have surged since the escalation of the Iran conflict. Brent crude has risen from the low $70s per barrel before the war to close to $100 in recent trading, a move of between 35% and 45%, and Goldman's economists argue that energy prices feeding into broader price measures have not yet given the Fed sufficient grounds to ease. The March PCE data illustrate the difficulty.
Headline PCE rose 3.5% on a year-on-year basis, up sharply from earlier in the year, while core PCE, stripping out food and energy, climbed 3.2% annually. Personal spending rose 0.9% in March, pointing to a consumer that is still absorbing higher prices without meaningfully pulling back, a combination that makes near-term rate cuts difficult to justify. Fed Chair Jerome Powell acknowledged at the most recent FOMC meeting, held on 28 and 29 April, that inflation has moved higher, attributing part of the increase to elevated global energy prices.
The Fed held rates unchanged at 3.50% to 3.75% at that meeting. Goldman's terminal rate forecast remains unchanged at around 3% to 3.25%, a signal that while cuts will eventually come, the path there will be slower and shallower than many in the market had expected. Alongside the rate call revision, Goldman also trimmed its estimate for the probability of a US recession over the next 12 months, suggesting the delay to easing reflects economic resilience rather than deterioration. --- Goldman's delay to December 2026 adds institutional weight to a rates market already repricing for a prolonged Fed hold, keeping upward pressure on Treasury yields across the curve.
A terminal rate anchored at 3% to 3.25% signals that the easing cycle will be shallower than many equity and credit markets have priced in, which could weigh on rate-sensitive sectors and corporate borrowing costs. For energy markets, the persistence of oil-driven inflation as the key variable in Goldman's framework means any further escalation in Hormuz disruptions directly lengthens the timeline before financial conditions begin to ease. This article was written by Eamonn Sheridan at investinglive.com.
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