TLDRGoldman Sachs projects the Federal Reserve will maintain current interest rates throughout 2026First rate reductions now anticipated for June and December 2027Revision follows unexpectedly robust employment figuresCore PCE inflation projected to exceed 3% across 2026Probability of rate increase doubled to 20% from previous 10%Goldman Sachs has updated its Federal Reserve monetary policy projection, indicating the central bank will maintain its current interest rate stance until 2027. This represents a delay from the bank’s prior forecast that anticipated reductions beginning in late 2026.The revised outlook stems from robust U.S. employment data demonstrating continued labor market strength. According to Goldman economist David Mericle, recent figures eliminate any pressing need for the Federal Reserve to implement rate cuts during the current year.Factors Behind the Revised Timeline[[LINK_START_0]]Goldman[[LINK_END_0]] currently anticipates monetary easing in both June and December 2027, representing a postponement from its previous projection of December 2026 and March 2027.Mericle indicated that unemployment is expected to experience only a marginal increase to 4.4% this year, below his previous 4.6% projection. According to his analysis, this level “is not enough to create a sense of urgency to lower rates.”The financial institution identified three primary factors sustaining elevated inflation: trade tariffs, increased oil prices connected to Middle East geopolitical tensions, and what the bank characterizes as inflated demand projections related to artificial intelligence development.These inflationary pressures are expected to maintain year-over-year core PCE inflation above the 3% threshold throughout 2026. Goldman projects inflation will approach the Federal Reserve’s 2% target only after entering 2027.Mericle emphasized that beneath the surface, economic conditions appear softer than headline figures indicate. Wage growth currently tracks approximately 0.5 percentage points below levels typically associated with stable 2% inflation.Additionally, forward-looking indicators for rental price growth continue to register low readings, which Goldman interprets as evidence that inflation could moderate once transitory factors dissipate.Modest Increase in Rate Hike ProbabilityWhile taking a more conservative stance on rate reductions, Goldman maintains that rate increases remain improbable. Nevertheless, the bank has doubled its probability assessment for a potential hike to 20% from the previous 10%.Mericle explained that sustained economic growth and employment strength diminish the likelihood that a rate increase would be perceived as a Federal Reserve policy error.Goldman maintained its terminal rate projection at 3% to 3.25%. The institution suggested that an extended pause period might lead Federal Reserve policymakers to determine current rates are appropriately calibrated.The bank added that its probability-weighted forecast “remains meaningfully more dovish than market pricing.”Nomura issued a similar forecast last month, projecting the Fed would maintain its current stance through 2026, indicating Goldman’s perspective is shared by other major financial institutions.Based on the CME FedWatch tool, market participants currently price in a 75.5% likelihood of rate increases by year-end, demonstrating widespread market apprehension regarding persistent inflationary pressures.The Federal Reserve has issued no official response to Goldman’s latest monetary policy forecast.The post Goldman Sachs Delays Fed Rate Cut Expectations Until 2027 Amid Robust Employment Data appeared first on Blockonomi.