Goldman Sachs: No longer expects Fed rate cuts this year; high interest rates may persist for longer.

With the U.S. labor market performing better than expected, Goldman Sachs economists no longer predict that the Federal Reserve will begin cutting interest rates this year.

According to a Bloomberg report, Goldman Sachs' latest report indicates that the timing of the Federal Reserve's "last two" rate cuts has been postponed from the previously estimated December 2026 and March 2027 to June and December 2027.

However, in a report released last week, Goldman Sachs' chief U.S. economist, David Mericle, emphasized that given that inflation "is unlikely to generate sustained upward momentum on its own," the likelihood of the Federal Reserve restarting interest rate hikes remains very small.

The previously released US non-farm payroll data for May was significantly better than expected, showing that the labor market is very resilient and also increasing market bets on the Federal Reserve raising interest rates this year to suppress inflationary pressures caused by the war with Iran .

The bond market currently anticipates a possible 25-basis-point rate hike by the Federal Reserve before the end of this year, an expectation that triggered a 5% drop in the Nasdaq 100 index last Friday.

Goldman Sachs judges that the chances of a rate hike are still not high, but given the increasingly hawkish statements from Federal Reserve officials and the continued robust economic activity, it has raised the probability of a "small rate hike" from 10% to 20%.

Newly appointed Federal Reserve Chairman Warsh will chair his first monetary policy meeting on June 16-17. US President Trump has publicly stated that raising interest rates is a "mistake."

In an interview with NBC, Trump said that "good data is causing the stock market to fall" because the market expects interest rates to rise, "but there is really no reason to raise interest rates."

In its report, Goldman Sachs noted that the Federal Reserve's "dot plot of long-term interest rates" over the past year has remained largely stable, with most participating officials still describing the current policy stance as "slightly restrictive" and expecting monetary policy to "normalize" further once inflation falls.

Based on this, Goldman Sachs' baseline scenario remains: two rate cuts of 25 basis points each next year, but the probability of this happening has been lowered from 40% to 30%.

The report points out that the longer the Federal Reserve remains on hold, the more it reinforces the market perception that current interest rates are "close to a reasonable level." Meanwhile, strong investment demand related to artificial intelligence (AI) may justify maintaining higher borrowing costs for an even longer period. Therefore, Goldman Sachs believes that "unchanged interest rates, and rates remaining high for a longer period" is another quite plausible scenario besides the baseline forecast.

Goldman Sachs also slightly lowered its forecast for the U.S. unemployment rate this year, from 4.6% to 4.4%.

Source: [Lianhe Zaobao] (https://www.zaobao.com/news/world/story20260608-9173031)