Goldman Sachs Revises Interest Rate Forecast for Upcoming Fed Meetings Following Today’s Data

Goldman Sachs economists predict the Fed will cut interest rates three times in a row at its remaining meetings this year, revising their previous estimate of two rate cuts.

Goldman Sachs cited the softening in labor market conditions as a key factor influencing the updated forecast in a detailed note. “Today’s report suggests that the softening in labor market conditions has now gone beyond what is welcome,” the note said.

The new forecast includes a potential 25 basis point cut at each of the three remaining Fed meetings this year, and Goldman Sachs economists said a 50 basis point cut in September could be possible if the August jobs report shows further weakness.

Here are the key takeaways from the Goldman Sachs report:

• July Employment DataNonfarm payrolls increased by 114,000 in July, below consensus expectations. More than half of that payroll gain occurred in the health care sector, while the payroll penetration index fell to its lowest level since May 2016.
• Unemployment rate: The household survey reflected that the unemployment rate rose by 0.2 percentage points to 4.3%. Although Cyclone Beryl had “no significant impact on national employment and unemployment data for July,” there was a significant increase in the number of workers who were off work and temporarily laid off due to the weather.
• Average Hourly Earnings: These earnings rose by 0.2% in July from the previous month, below expectations. The underlying pace of average hourly earnings growth is estimated at +3.9%.

*This is not investment advice.