Rates Hold Steady Longer
Goldman Sachs Predicts Federal Reserve Will Delay Rate Cuts Until 2027 Amid Strong Economy
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Goldman Sachs no longer expects the Federal Reserve to cut interest rates before 2027, the bank said Friday. The revision came hours after the U.S. economy added 172,000 jobs in May — more than double the 85,000 analysts had predicted, according to Reuters.
The bank now sees rates staying at 3.50%–3.75% through all of 2026. Goldman also raised the odds of a small rate hike this year from 10% to 20%, though a hike is not yet its main forecast.
A Blowout Jobs Report Kills Hope for 2026 Cuts
The May payrolls report changed everything. The Bureau of Labor Statistics said employers added 172,000 jobs — more than twice what Wall Street expected. The unemployment rate held steady at 4.3%. Goldman economist David Mericle wrote in a note that the Fed is now likely to leave rates unchanged for the rest of 2026.
Mericle said strong wage growth and a resilient labor market lower the urgency to ease policy. Chief economist Jan Hatzius added that the "most natural path" is to wait until the effects of tariffs and the U.S.-Iran war have faded before cutting, according to Reuters.
War, Oil, and Inflation Keep the Fed's Hands Tied
Goldman's shift did not happen in a vacuum. In late February 2026, the U.S. and Israel launched strikes against Iran. Iran responded by closing the Strait of Hormuz — the world's most important oil shipping lane. Brent crude jumped to between $105 and $120 per barrel, a 44% rise since the war began.
Higher energy costs pushed inflation back up to its highest level in two years. At the same time, AI spending by big tech companies has surged to an estimated $800 billion in 2026. That flood of investment keeps demand — and prices — high, giving the Fed even less reason to cut, according to Reuters.
Morgan Stanley and JPMorgan Also Push Cuts to 2027
Goldman is not alone. Morgan Stanley now expects the Fed to cut rates in March and June of 2027. JPMorgan Asset Management goes further, warning that the Fed's next move could actually be a hike in Q3 2027 if inflation stays high. BlackRock portfolio manager Jeffrey Rosenberg said markets are "on the precipice of pricing in a full rate hike" this year.
The Nasdaq 100 dropped 5% on June 5 after the jobs report and Goldman's note hit markets. The 10-year Treasury yield rose as investors gave up on "insurance cuts" — small rate cuts the Fed might have used to protect against a slowdown, according to Reuters.
Trump Pushes Back as Americans Feel the Squeeze
President Trump is not happy. On June 7, he told NBC, "There is absolutely no reason to raise rates, and we actually should cut them." Trump has long pressured the Fed to lower borrowing costs, raising concerns about the central bank's independence.
Ordinary Americans are already feeling the pain. The average 30-year mortgage rate climbed to 6.48% as of June 4, up from 6% in February. That jump has effectively frozen the housing market. New Fed Chair Kevin Warsh, confirmed by the Senate 54–45 in May, will chair his first FOMC meeting on June 16–17, where all eyes will be on his next move, according to Reuters.
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