Goldman delays Fed cuts to Dec 2026

Wall Street’s latest Fed call just got more hawkish. Goldman Sachs and Bank of America both pushed their expected rate cuts further out, basically saying the same thing: inflation is not cooling fast enough, and the labor market is not cracking fast enough, for the Federal Reserve to ease anytime soon. Goldman now expects the first cut in December 2026. BofA is even later and sees cuts only in the second half of 2027. ### What changed today? The real news is the timing. Goldman had been looking for a first cut in September 2026, but moved that to December 2026 and kept a second cut in March 2027. BofA shifted to an even slower path — no cuts this year and two 25-basis-point cuts in July and September 2027. That is a meaningful reset, not a tiny tweak. It tells you big banks think the Fed’s waiting game just got longer. (money.usnews.com) ### Why are they pushing cuts back? Because the two things the Fed watches most are still uncomfortable. Inflation is elevated, and jobs data still looks resilient. Goldman’s note tied the delay to higher near-term inflation and lower recession risk. Reuters’ version of the call also pointed to high energy prices and labor-market strength. In plain English — the economy is not weak enough to force the Fed’s hand, and prices are not calm enough to let it relax. (money.usnews.com) ### How hot is inflation right now? Still too hot for a central bank trying to get back to 2%. Core PCE — the Fed’s preferred underlying inflation gauge — was up 3.2% year over year in March 2026. That is above both target and the Fed’s own March projection for 2026 core PCE of 2.7%. So when banks say cuts are getting delayed, they are reacting to a real gap between where inflation is and where policymakers want it to be. (money.usnews.com) ### Is the labor market really that strong? Strong enough to remove urgency. The April jobs report showed payrolls up 115,000 and unemployment unchanged at 4.3%. That is not a boom, but it is also not the kind of deterioration that usually makes the Fed rush to cut. If unemployment were jumping and payrolls were rolling over, the story would look different. Right now, it doesn’t. (bea.gov) ### Didn’t Goldman also lower recession odds? Yes — and that matters a lot. Goldman cut its 12-month U.S. recession probability to 25%, down 5 percentage points. That sounds like a side note, but it is actually central to the whole forecast change. If recession risk is lower, the case for preemptive rate cuts gets weaker. The bank is basically saying the economy can tolerate restrictive policy for longer than it thought a few weeks ago. (bls.gov) ### Where does this leave the Fed itself? The Fed was already cautious. Its March 17–18, 2026 projections showed a median federal funds rate of 3.4% at the end of 2026, with inflation still above target. Even before today’s bank calls, policymakers were signaling a slow glide down, not a fast pivot. Goldman and BofA are now leaning even harder into that higher-for-longer idea. (investing.com) ### Who feels this first? Anyone who needs cheap money. Rate-sensitive sectors — housing, private equity, leveraged companies, and capital-heavy industries like aerospace — all care about how long borrowing stays expensive. The catch is that a delayed cutting cycle does not just affect bond traders. It changes project math, refinancing windows, and how much investors are willing to pay today for earnings that might not show up for years. (federalreserve.gov) ### What’s the bottom line? This is not a story about one forecast note. It is a story about the center of gravity moving. Big banks are adjusting to an economy that still looks too inflationary and too durable for quick Fed relief. If that view holds, “higher for longer” stops being a slogan and starts looking like the base case for all of 2026. (money.usnews.com)