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Goldman Sachs Does Not See Rate Cuts in 2026, While Trump Sees No Reason for Higher Rates
Goldman Sachs has lowered its expectations for Federal Reserve rate cuts this year after the US labour market proved stronger than expected.
The bank now expects the Fed’s next two quarter-point cuts to take place in June and December 2027. Goldman had previously expected those cuts in December 2026 and March 2027.
The change came after the May employment report showed 172,000 new jobs, nearly double market expectations of 88,000 and well above April’s 115,000.
The unemployment rate remained stable at 4.3%, while Goldman lowered its own year-end unemployment forecast to 4.4% from 4.6%.
Goldman’s chief US economist David Mericle said the labour market remains stronger than expected and does not provide a strong reason for the Fed to begin cutting rates.
Support for the “Higher for Longer” View Strengthens
Goldman still expects two rate cuts in the future, but confidence in that view has weakened. The bank lowered the probability of its base case from 40% to 30%. At the same time, the probability of a rate hike doubled from 10% to 20%.
Goldman assigned a 25% probability to rates remaining unchanged and another 25% probability to a recession scenario that would lead to larger cuts.
The bank believes inflationary pressure from tariffs, geopolitical tensions and AI-driven investment demand could keep borrowing costs elevated for longer.
Goldman expects core PCE inflation to remain above 3% through 2026. The core PCE index stood at 3.3% in April, still well above the Fed’s 2% target.
The bank argues that inflation should eventually return to 2% in 2027, as wage growth remains below levels associated with sustained inflation and rent indicators continue to soften.
Markets Begin Pricing in Tightening
Stronger economic data has changed market expectations. Bond traders have fully priced in a 25-basis-point rate hike by December. After the employment report, Treasury markets sold off sharply, while the Nasdaq 100 index fell by more than 5%.
Several analysts expect the June 16–17 Federal Open Market Committee meeting under new Fed Chair Kevin Warsh to remove any language pointing to near-term easing. Policymakers are also expected to publish forecasts showing higher inflation and interest-rate expectations than in March.
Economists expect May CPI data, due before the meeting, to show annual inflation rising to 4.2%, the highest level in more than three years, driven by energy, raw material and fertiliser prices.
Trump Pushes Back Against Rate-Hike Expectations
President Donald Trump publicly rejected the idea that the Federal Reserve should raise rates. In an interview with NBC’s Meet the Press, Trump argued that stronger economic data should not be seen as a reason to tighten policy.
According to Trump, good reports cause markets to fall because investors expect higher rates. He said there was no reason to raise borrowing costs and that the Fed should actually cut rates.
Trump called rate hikes a mistaken move and argued that economic success itself could help bring inflation down. He noted that higher rates would make managing the national debt more difficult and limit spending priorities, including military investment.
Although Trump has repeatedly said that Fed Chair Kevin Warsh should make independent decisions, his latest comments show that the White House remains uncomfortable with tightening expectations.
See also: "Gold and Silver Prices Fall 23% and 44% Despite the US–Iran War and Rising Consumer Price Index"
