Goldman Sachs Sees Fed Holding Rates Until 2027 After Strong Jobs Report

Goldman Sachs has pushed its forecast for the Federal Reserve’s next interest rate cuts into 2027, a move that shows how a stronger-than-expected U.S. labor market is reshaping Wall Street’s view of the economy and monetary policy.

The bank now expects the Fed to deliver two rate cuts in June and December 2027, instead of December 2026 and March 2027, Reuters reported. The change came after a stronger May jobs report suggested that hiring has regained momentum, reducing pressure on the central bank to begin easing policy this year.

The U.S. economy added 172,000 jobs in May, while the unemployment rate held at 4.3%, according to the Bureau of Labor Statistics. The payroll gain was more than double expectations in some surveys, a sign that employers are still adding workers at a pace that complicates the case for rate cuts.

The report landed at a delicate moment for the Fed. Inflation remains above the central bank’s 2% target, while policymakers are weighing whether the economy is strong enough to tolerate rates staying elevated for longer. The Fed’s benchmark interest rate is currently in a target range of 3.5% to 3.75%. Goldman’s revised call signals that the “higher for longer” era, once thought to be fading, may have more runway.

Strong job creation gives the Fed cover to wait, particularly if inflation risks remain sticky due to tariffs, oil prices or resilient consumer demand. The shift also reflects a broader change in market psychology. Before the jobs report, investors had been watching for signs that softer hiring could reopen the door to cuts. Instead, the data strengthened expectations that the Fed may keep policy unchanged through 2026, or even consider a hike if inflation pressures intensify. Rate futures moved quickly after the report.

The outlet noted that markets priced in a 68.4% chance of a Fed rate increase by December after the jobs data, up from 52% a day earlier. For the Fed’s June meeting, traders still largely expect policymakers to hold rates steady. Goldman is not alone in pushing back its expectations. Nomura has also forecast that the Fed could remain on hold through 2026, according to Reuters. Unless the labor market weakens meaningfully or inflation cools decisively, the Fed has little incentive to rush.

The stronger jobs data also rattled financial markets. Stocks fell sharply Friday as investors reconsidered the path of interest rates, with technology shares hit especially hard. Higher rates tend to weigh on growth stocks because they reduce the present value of future earnings and raise borrowing costs for companies that depend on cheap capital.

For consumers, a delayed rate-cut cycle could keep costs elevated. For investors, it raises the odds that the next phase of the market will be driven less by hopes for cheaper money and more by earnings, productivity and whether inflation can cool without a labor-market crack. Goldman still does not appear to be calling for a new tightening cycle as its base case.

But by moving its rate-cut forecast into 2027, the bank is effectively acknowledging that the economy is starting from a stronger position than previously assumed. The Fed’s next policy decision is scheduled for June 17.