Goldman Sachs expects the Federal Reserve could be more open to further interest-rate cuts next year than markets previously assumed, following this week’s policy easing and a notably cautious tone from Chair Jerome Powell on labour-market risks (for example: investingLive Americas market news wrap : US unemployment rate rises to four-year high).
Josh Schiffrin, chief strategy officer and head of financial risk at Goldman Sachs Global Banking & Markets, said Powell’s press conference this time last week signalled growing concern inside the Fed about the sustainability of employment conditions. While the central bank’s base case remains to hold rates steady and assess incoming data, Schiffrin argued the hurdle for additional cuts may be lower than feared heading into the meeting.
Powell acknowledged that the labour market has continued to cool gradually, but also warned that recent employment data may be overstating underlying job growth. He highlighted what he described as significant downside risk to labour conditions, suggesting the Fed is increasingly sensitive to signs of deterioration rather than overheating.
According to Goldman, this shift in emphasis makes upcoming labour-market data critical for shaping policy expectations. Schiffrin said the next few employment reports will be a key determinant of whether the Fed resumes easing, with particular focus on the unemployment rate rather than headline payroll gains.
Looking further ahead, Goldman expects the easing cycle to extend into 2026, with the fed funds target rate potentially falling to 3% or below. That outlook reflects a view that inflation will continue to moderate while labour-market slack builds, giving the Fed room to remove remaining policy restraint.
In rates markets, Schiffrin anticipates a steeper yield curve as short-dated yields adjust lower in response to easier policy, while longer-dated yields remain supported by supply dynamics and term-premium considerations. For the U.S. dollar, this combination of lower rates and curve steepening points to a softer medium-term profile, particularly if labour data confirms the Fed’s growing concerns.
This article was written by Eamonn Sheridan at investinglive.com.