Goldman Sachs predicts: The Federal Reserve may be more aggressive in cutting interest rates next year, with unemployment rate weighting becoming a key reference indicator that exceeds non-farm payrolls.
Recently, Goldman Sachs updated its forecast for the Federal Reserve's monetary policy in 2026, believing that its attitude towards interest rate cuts may be more aggressive than previously expected by the market.
Josh Schiffrin, Chief Strategist of Goldman Sachs' Global Banking and Markets Division, stated that based on the remarks made by Federal Reserve Chairman Powell at the press conference, there is growing concern within the Federal Reserve about the sustainability of the job market.
This concern also implies that even if the Federal Reserve will still take a “wait-and-see approach to data and maintain current policy” as a baseline orientation, the threshold for initiating additional interest rate cuts again has already been lowered compared to the general expectations of the market before this meeting.
In assessing the future direction of the Federal Reserve's policy, Goldman Sachs suggests that the market shift focus to adjusting observation priorities. Schiffrin stated that in the upcoming multiple employment reports, the weighting of unemployment rate data will overshadow the changes in total non-farm employment, becoming the core basis for measuring whether the Federal Reserve will restart the easing cycle.
This shift in observation perspective clearly reflects that policymakers are considering a transition from simply focusing on the growth rate of the job market to placing greater emphasis on the stability and health of the labor market.
Based on the judgment that inflation will continue to show moderate trends and that the degree of labor market slack may further rise, Goldman Sachs expects the Federal Reserve's easing cycle to continue until 2026, until the federal funds target rate falls to 3% or even lower levels.
Overall, Goldman Sachs' forecast is more dovish than the mainstream views in the market. If inflationary pressures continue to ease and the job market shows signs of weakness, the Federal Reserve will gain sufficient policy space and willingness to act, gradually lifting the remaining policy restrictions against inflation and thus shifting towards a dovish stance to solidify economic growth.