Goldman Sachs delayed its forecast for Federal Reserve rate cuts to mid-2026. The bank now expects reductions in June and September 2026. Previously, it projected cuts in March and June. Analysts point to softer nonfarm payrolls and a weakening labor market. They also cite inflation progress and stronger GDP momentum. Moreover, they see fading tariff effects supporting a later start. Consequently, Goldman judges that risks now look more balanced. This change follows the soft jobs data impact across key indicators. Therefore, timing shifts as momentum cools and caution rises.
The Bureau of Labor Statistics reported only 50,000 payroll gains in December. Forecasters had anticipated a stronger figure. Additionally, November payrolls were revised down to 56,000. Meanwhile, the unemployment rate fell to 4.4%. That drop complicates the broader interpretation of labor conditions.
Nevertheless, wage pressures appear tempered compared to earlier periods. Markets reacted to the soft jobs data impact quickly. As a result, traders adjusted expectations toward mid-year easing. This response echoed Goldman's revised path and tone.
Bond traders now favor June for the next cut. They also expect another reduction in the fourth quarter. Consequently, market views align with Goldman's updated timeline. The soft jobs data impact helps explain this shift. Goldman's chief US economist expects a mid-year decision. He emphasizes inflation trending toward the target. He also notes labor conditions are finding a steadier footing. Accordingly, Goldman lowered recession odds to 20% from 30%. Moreover, the bank projects a 3% to 3.25% fed funds rate by end-2026. That view assumes moderating inflation as tariff pass-through fades. It also assumes limited second-round effects and stable equity markets.
December's report capped a year of weak hiring. Employers added only 584,000 jobs in 2025. That pace was the slowest outside a recession since 2003. Revisions showed deeper losses in October and modest gains in November. Sector trends remained uneven across the economy. Retail shed jobs, while leisure and health added roles. The household survey showed rising employment alongside falling participation. Therefore, signals stayed mixed despite the soft jobs data impact. Policymakers face a complex backdrop for decision-making.
Market-based indicators shifted after the data release. Short-maturity Treasury yields climbed on reassessed risks. However, long-maturity yields slipped from recent highs. Traders largely removed hopes for a January cut. Instead, they looked to later dates for policy moves. Economists stressed that slower hiring does not guarantee a recession. Some noted "low hire, low fire" corporate behavior. Still, they warned of stall-speed risks if demand weakens further. Consequently, vigilance remains essential into mid-2026.
Goldman's updated path replaces earlier cuts in March and June. Prior research outlined a terminal rate of 3% to 3.25%. Today's revision reflects the soft jobs data impact. It also considers evolving inflation dynamics and tariffs. Other institutions similarly delayed their cut forecasts. Morgan Stanley, Barclays, and Citigroup moved into late 2026. Markets mirrored these changes amid a fragile labor picture. Observers expect a cautious policy in early 2026. Therefore, the Fed will weigh inflation progress against hiring weakness. It will prefer patience until disinflation proves durable.
Households face uncertainty about borrowing costs. Mortgage and auto rates may ease later than hoped. Consumers might see relief only after mid-year. Businesses confront planning and investment questions as well. Slower hiring could constrain growth while tempering wages. Consequently, firms may delay expansions pending clarity. The soft jobs data impact informs these decisions.
Goldman views a balancing act between inflation and employment. It sees meaningful progress masked by tariff noise. It anticipates clearer disinflation as those effects fade. Meanwhile, analysts will parse upcoming CPI and PCE readings. They will assess whether core measures keep trending downward. Any upside surprise could defer cuts further. Ultimately, Goldman now projects June and September 2026 cuts. This shift follows modest payroll gains and complex unemployment dynamics. Markets and strategists broadly agree on a later easing start. The Fed appears poised to wait for clearer signals. It will seek sustained disinflation and labor stabilization before cutting.
