Goldman Sachs Group Inc. economists no longer expect the Federal Reserve to cut interest rates this year due to a stronger-than-expected labour market.
The bank pushed back its forecast for the Fed’s final two rate cuts to June and December 2027 from previous expectations of December 2026 and March 2027. But a Fed rate hike remains unlikely as inflation s Goldman chief US economist David Mericle said in a note dated Friday.
The report comes after US job growth for May topped all forecasts, suggesting a resilient labour market and fuelling bets that the central bank will raise interest rates this year in order to contain growing price pressures stemming from the Iran war. Bond investors priced in a quarter-point Fed hike by December, while the Nasdaq 100 plunged 5 per cent on Friday.
The bank continues to view rate hikes as unlikely, though it raised the probability of modest hikes to 20 per cent from 10 per cent as Fed officials adopt a more hawkish tone and economic activity remains resilient.
The Fed’s “longer-run dots have remained quite stable over the past year, and most participants still describe the policy stance as mildly restrictive and envision further normalisation once inflation comes down,” the note said.
The bank’s baseline forecast still calls for two quarter-point cuts next year, but it assigned only a 30 per cent probability to that outcome, down from 40 per cent previously.
A longer pause could reinforce the view that rates are already “in an appropriate place,” while strong investment demand tied to artificial intelligence could strengthen the case for keeping borrowing costs higher for longer, the note said. A flat rate path remains “a plausible alternative” to its baseline forecast as a result, Goldman said.
Goldman also revised down its US unemployment forecast to 4.4 per cent this year from 4.6 per cent previously.
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