Fed Still Expected To Cut Rates Twice In 2026: Goldman Sachs

The spotlight has been cast on the reliability of U.S. employment data, particularly following remarks from both Goldman Sachs' Chief U.S. Economist, David Mericle, and Federal Reserve Chair Jerome Powell.

These figures suggest a significant overestimation in reported payroll growth. The consensus is that the reported average monthly payroll increase of 40,000 from May to September could, in reality, reflect a decline of approximately 20,000 jobs. 

The core issue revolves around the Bureau of Labor Statistics' Quarterly Census of Employment and Wages (QCEW), which suggests payroll numbers may be “artificially high” and subject to downward revisions. The Federal Reserve is closely monitoring this situation, recognizing the potential implications for monetary policy decisions.

The market is now pricing in a more dovish stance from the Fed, increasing the likelihood of future rate cuts aimed at supporting the labor market and broader economy.

Goldman Sachs maintains its projection that the FOMC will implement two rate cuts in March and June 2026, targeting a terminal rate of 3.00%-3.25%. This outlook is heavily influenced by the possibility of negative job creation.

Markets will be keeping a close watch on upcoming employment reports and potential revisions, with any movement paramount in assessing the true state of the labor market and recalibrating strategies.

The acknowledgment of potential overstatements in payroll data by both the Federal Reserve and Goldman Sachs underscores the critical role of accurate employment metrics in shaping monetary policy and market expectations.

A more dovish Fed is seen as bullish for markets, with the S&P 500 (+0.67%), the DJIA (+1.05%), and the Russell 2000 (+1.32%) all rallying on the Fed Speak to close the day strong.