Fed Rate Cut Delay
Goldman Sachs Revises Fed Rate Cut Forecast to 2027 Amid Strong Jobs Data, Triggering Market Selloff
Anonymous
Goldman Sachs has revised its Federal Reserve outlook after stronger-than-expected U.S. jobs data, with the economy adding 172,000 jobs in May and keeping unemployment at 4.3%. The bank now expects no rate cuts in 2026, pushing its forecast to two quarter-point reductions in June and December 2027, while still viewing additional hikes as unlikely despite slightly higher odds for rate increases. The shift reflects a higher-for-longer policy stance driven by firmer activity, more hawkish Fed messaging, and fears that inflation pressures could persist, including amid renewed Middle East tensions that market participants say could complicate the inflation picture. The change has contributed to a risk-off mood, hitting technology and AI stocks, and it coincided with a broad market selloff after the jobs report, including Goldman Sachs shares falling about 4.9% in early June. The reassessment also widened Wall Street’s split, with Citigroup continuing to forecast multiple cuts in 2026 even as other major banks have moved away from that view. Overall, investors are weighing persistent inflation risk against signs of cooling momentum as upcoming Fed meetings draw attention.
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Goldman’s U.S. economics team argued that the inflation shock tied to the Middle East war is not spreading broadly, saying: “But we have not yet seen signs that the inflation shock from the war is broadening out.”
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The same Goldman note added that inflation is less likely to become self-sustaining because “the labor market [is] in balance and wage growth [is] running below the rate compatible with 2% inflation,” supporting the case to delay cuts rather than deliver near-term hikes.
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Goldman increased the probability of a near-term Fed rate hike to 20% from 10% previously, even while still saying the overall scenario of higher rates remains unlikely.
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The June selloff following the jobs report was sharp across rate- and growth-sensitive areas: the S&P 500 fell 2.6%, the Nasdaq dropped 4.2%, and the Philadelphia Semiconductor Index plunged 10.3% (its worst day since March 2020).
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In the midst of the drop, Goldman equity executive John Flood characterized the selloff as a potential entry point, saying the S&P 500 still has a path to challenge 8,000 points and noting that historically “buying when the S&P 500 pulls back 2% has been rewarding.”
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