Goldman Sachs has issued a fresh warning that a series of factors are significantly increasing the risk of U.S. economic "re-acceleration," which could bring dramatically different prospects and challenges for the monetary policy path in 2026.

On September 28, Goldman Sachs analysts Cosimo Codacci-Pisanelli and Rikin Shah stated in their latest report that the risk of U.S. economic re-acceleration is mounting, with this expectation built upon multiple favorable factors including labor market resilience, fiscal stimulus expectations, and loose financial conditions.

The bank's analysts believe that the current U.S. economy is performing strongly across multiple indicators. This week's initial jobless claims data was encouraging, while Goldman's Global Investment Research division expects U.S. GDP growth to reach a healthy 2.6% (annualized quarter-over-quarter) in the third quarter. This provides strong support for growth in the first half of next year.

The report states that this prospect of economic re-acceleration will have significant implications for the Federal Reserve's monetary policy path, particularly in the context of selecting a new Fed chair. Goldman points out that key questions include whether the Fed will still cut rates below neutral levels when the economy is operating healthily, and whether it can implement rate hikes during a potential Trump presidency.

**Multiple Tailwinds Driving Economic "Re-acceleration"**

Goldman's analysis shows that the U.S. economy is demonstrating robust performance across multiple key indicators.

According to Goldman, its U.S. macroeconomic surprise index (US MAP surprise index) has surged significantly recently, and this week's initial jobless claims were also encouraging. The bank's Global Investment Research (GIR) expects U.S. third-quarter GDP to grow at a healthy annualized rate of 2.6%.

The report identifies key factors driving this risk:

Loose financial conditions: Strong performance in risk assets, expectations of future Fed rate cuts, and dollar weakness have collectively created a loose financial environment.

Fiscal and investment: Positive fiscal policy impulses are expected in the first half of next year, while capital expenditure in artificial intelligence will continue to provide growth momentum.

Consumer and regulatory: The U.S. consumer base remains solid, while the impact of deregulation cannot be ignored.

Goldman states that the combination of these tailwinds increases the likelihood of above-expected economic growth next year.

**Monetary Policy Path Depends on New Fed Chair's Inclinations**

Goldman emphasizes that the Fed's policy paths for 2025 and 2026 present distinctly different stories.

For the remainder of this year, Fed Chair Powell's remarks this week effectively summarized the current situation: recent job growth has been below the "break-even" level. Therefore, Goldman believes:

Tariffs still appear to be a one-time adjustment to price levels, while services inflation deceleration continues.

This provides a path for the Fed to normalize policy rates closer to neutral levels (3-3.5% range), as maintaining restrictive policy for too long could unnecessarily further weaken the labor market. Goldman's baseline scenario remains 25 basis point cuts in both October and December this year.

Regarding next year's monetary policy path, facing the risk of economic re-acceleration, Goldman believes the future largely depends on assessments of the new Fed chair's policy inclinations. The report poses two core questions:

Will the Fed cut rates below neutral levels even when the economy is operating healthily?

During a potential Trump presidency, will the Fed have the ability to raise rates to address economic overheating?

In response to this uncertainty, Goldman proposes two distinctly different trading approaches:

If markets expect policy rates to remain low (i.e., the Fed will not or cannot effectively tighten policy), then the correct trades would be to go long U.S. longer-dated breakeven inflation rates, go long gold, and continue holding risk assets.

If markets believe the Fed will respond to economic re-acceleration and tighten policy, then the U.S. Treasury yield curve should become steeper.

The report specifically mentions that the SFRM6/M8 spread, which measures interest rate expectations for mid-2026, is still hovering near flat levels (currently at -5 basis points), indicating that markets have not fully absorbed the risk of rate hikes.

In this scenario, the 2-year to 10-year Treasury yield curve (2s10s) should also steepen.