Goldman Sachs analysts believe that the recent slowdown in U.S. job creation, along with the risk of further downward revisions to employment figures, has likely already nudged the Federal Reserve toward resuming interest rate cuts.
In a research note, the bank argued that the labor market will likely appear “mediocre” in the months ahead due to weak economic momentum and specific policy developments, including the White House’s plan to trim the federal workforce and tighter immigration enforcement.
These dynamics, combined with hiring uncertainty stemming from tariff-related pressures, support Goldman’s forecast for three quarter-point cuts by the Fed in September, October, and December, followed by two additional reductions in 2026. Analysts added that a half-point move cannot be ruled out but would require “a larger rise in the unemployment rate or worse payrolls numbers than we expect.”
Markets are now looking ahead to Wednesday’s release of minutes from the Fed’s July policy meeting, when the central bank held rates steady at 4.25%–4.50%. The decision saw rare internal division, with Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman dissenting in favor of an immediate rate cut to cushion a cooling labor market.
Subsequent reports have reinforced concerns, showing weaker-than-expected July job growth along with sharp downward revisions to the May and June figures. At the same time, retail sales surged, while producer prices jumped more than anticipated, adding complexity to the economic picture.
Fed Chair Jerome Powell will speak at the Jackson Hole symposium on Friday, where markets will be watching closely for signals about whether his cautious stance has shifted in light of the latest data.
Meanwhile, ING analysts suggested that the September Fed meeting could prove especially tense, calling it potentially “explosive” as Powell continues his policy tug-of-war with Donald Trump, who has criticized the Fed for not moving quickly enough on rate cuts to bolster growth.
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