In light of stronger-than-anticipated performance in the US labor market, economists at Goldman Sachs have withdrawn their previous forecast for a Federal Reserve interest rate cut in December 2026. The firm still anticipates two rate cuts of 25 basis points each, but has pushed the timing of these moves back to June and December of 2027.

In a report issued on June 5th, Goldman Sachs' chief US economist, David Mericle, stated, "The labor market has been stronger than we previously expected. We now project the unemployment rate will rise only modestly to 4.4%, which does not yet provide a compelling case for cutting rates." This revision follows recent employment data for May, which showed job additions significantly surpassing all market expectations surveyed by Bloomberg.

"Consequently, we believe the most reasonable course for the Federal Open Market Committee is to delay subsequent rate cuts until the effects from tariffs, geopolitical conflicts, and AI-related demand subside, and core PCE inflation moves closer to 2%," the report added. The core Personal Consumption Expenditures price index rose 3.3% year-over-year in April.

Goldman Sachs had previously projected the Fed would implement 25-basis-point cuts in December 2026 and March 2027.

David Mericle noted, "While the probability of a rate hike has increased from our initial assessment, a hike remains unlikely. We have not yet seen signs of a broad-based diffusion of inflation pressure from geopolitical conflicts, and with the labor market in balance and wage growth below the pace consistent with 2% inflation, this inflation shock is unlikely to become self-reinforcing."

He further commented, "Even accounting for the higher probability of a hike and the possibility of rates staying on hold, our probabilistic Fed rate outlook remains significantly skewed toward easing on balance, a notable divergence from current market pricing."