Goldman Sachs: No Longer Expects Fed to Cut Rates This Year Due to Strong Labor Market

June 8 – A Goldman Sachs economist said the U.S. Federal Reserve is no longer expected to cut interest rates this year, citing the stronger-than-projected labor market. The Wall Street firm has pushed back its forecasts for the Fed’s final two rate hikes? Wait no, rate cuts: yes, cuts, so: they now anticipate rate cuts in June 2027 and December 2027, compared to its prior call for reductions in December 2026 and March 2027. Goldman’s Chief U.S. Economist Mericle noted that inflation appears unlikely to become self-sustaining, keeping the prospect of Fed rate hikes slim but on the table. May’s blockbuster jobs report, which beat all estimates, underscored the labor market’s resilience and lifted market bets on additional central bank tightening. While Goldman still sees a rate hike as a low-probability scenario, it has raised the odds of a modest increase from 10% to 20%. The bank’s baseline forecast still calls for two 25-basis-point rate cuts next year, though the likelihood of that outcome has fallen from 40% to 30%. Additionally, Goldman trimmed its forecast for this year’s U.S. unemployment rate, lowering it from the prior 4.6% to 4.4%.