Goldman Sachs Delays Fed Rate Cut Forecast Amid Labor Cooling and Global Unrest

Goldman Sachs has adjusted its outlook for U.S. monetary policy, delaying its projection for interest rate reductions by the Federal Reserve. The investment bank now anticipates two quarter-point cuts to occur in June and September 2026, moving away from its earlier forecast of cuts beginning in March. This revision is primarily a response to cooling labor market data and evidence of stabilizing employment, even as the broader economy shows resilience through robust GDP growth and the diminishing influence of previous tariff hikes.

David Mericle, Goldman’s chief U.S. economist, noted that despite a softening job market, the Federal Reserve is likely to remain patient until mid-year as inflation continues its descent toward the central bank's target. Under this updated trajectory, the federal funds rate is expected to settle between 3% and 3.25% by the end of 2026. Simultaneously, Goldman has improved its economic outlook, lowering the estimated probability of a recession over the next twelve months from 30% to 20%, citing significant underlying progress on inflation once temporary trade-related price spikes are stripped away.

Financial markets reacted with caution to the news. S&P 500 and European futures edged lower during early Asian trading, while the U.S. dollar weakened against major currencies, including the yen and the euro. Treasury futures saw a slight uptick, indicating a minor dip in yields. While the shift in the Fed's timeline created some uncertainty, futures markets suggested a slight increase in the possibility that the central bank might eventually need to act more aggressively if economic conditions deteriorate.

External factors are also complicating the global financial landscape. Gold prices reached an unprecedented peak above $4,600 per ounce, driven by intensifying geopolitical friction in Iran. This unrest has also supported oil prices, despite a minor intraday dip in Brent crude. Furthermore, currency strategists highlighted that perceived tensions between the Fed and the U.S. administration are weighing on the dollar’s appeal. Amidst these fluctuations, Asian markets saw modest gains, though trading volumes were impacted by a holiday in Japan, leaving investors to weigh the balance between domestic policy shifts and escalating international risks.