For some context, Goldman Sachs had already pushed back their rate cut call from September to December last month here. But with their latest bump, they now expect the Fed not to cut rates at all this year with the first move set to follow only in June next year.
“We are pushing the final two rate cuts in our Fed forecast back to June and December of 2027. The labour market has been stronger than we anticipated, and we now expect the unemployment rate to rise only a touch further to 4.4%, not enough to create a sense of urgency to lower rates. As a result, we think the most natural path for the FOMC is to delay further cuts until the effects of tariffs, the war, and Al demand have faded and core PCE inflation nears 2%.”
In case you missed it, the US non-farm payrolls for May came in much hotter than expected with the jobless rate also holding steady at 4.3%. That gave markets a jolt on Friday last week but so far this week, there has been a lack of follow through.
Circling back to Goldman Sachs’ take on the Fed, they note that:
“We continue to see rate hikes as unlikely, though somewhat more likely than we initially thought…We have left our terminal rate forecast at 3-3.25%, largely because the FOMC’s longer-run dots have been stable over the past year and most participants envision further normalisation.”
