Economists at Goldman Sachs have shifted their stance, no longer anticipating any interest rate cuts from the Federal Reserve this year, citing a labor market that has proven more resilient than expected.

The bank has pushed back its forecast for the final two rate cuts from December 2026 and March 2027 to June 2027 and December 2027, respectively. However, Goldman's chief US economist, David Mericle, noted in a report on Friday that the likelihood of the Fed raising rates remains very low, as inflation is "unlikely to be self-sustaining."

The adjustment follows stronger-than-expected US non-farm payroll data for May, which highlighted the labor market's durability and fueled market expectations that the Fed might hike rates this year to counter inflation pressures potentially exacerbated by geopolitical tensions. Bond investors are now pricing in a 25-basis-point rate hike by the end of December, contributing to a sharp 5% decline in the Nasdaq 100 index on Friday.

While Goldman Sachs still views a rate hike as improbable, it has raised its probability estimate for a modest increase from 10% to 20%, acknowledging the Fed's more hawkish recent communications and the ongoing strength in economic activity.

The report stated that the Fed's longer-term policy projections have remained largely stable over the past year, with most officials still describing the current stance as slightly restrictive and expecting further policy normalization once inflation subsides.

Goldman's baseline forecast continues to project two 25-basis-point rate cuts in 2025, but the bank now assigns this scenario only a 30% probability, down from a previous 40%.

The analysis further suggests that the longer the Fed holds rates steady, the more it could reinforce the view that rates are already "at appropriate levels." Concurrently, strong investment demand related to artificial intelligence could provide justification for maintaining elevated borrowing costs for an extended period. Consequently, Goldman Sachs indicated that keeping interest rates unchanged remains a plausible alternative to its primary forecast.