Goldman Sachs: The Federal Reserve may adopt a more aggressive stance on interest rate cuts next year

Goldman Sachs' Chief Strategy Officer and Head of Financial Risk, Josh Schiffrin, stated that following last week's Federal Reserve interest rate cut and Chairman Jerome Powell's cautious remarks regarding labor market risks, the Fed's acceptance of further rate cuts next year may exceed previous market expectations.

Josh Schiffrin pointed out that Jerome Powell's statements indicate that concerns within the Fed about the sustainability of employment conditions are intensifying. Jerome Powell acknowledged that the labor market is gradually cooling, but also warned that recent employment data may overstate potential job growth and emphasized the significant downside risks facing labor conditions.

Goldman Sachs' analysis suggests that this shift in focus makes the upcoming labor market data crucial for shaping policy expectations, particularly emphasizing the unemployment rate rather than the overall non-farm payroll growth. Goldman Sachs expects this round of rate cuts to extend until 2026, with the federal funds target rate potentially falling to 3% or lower.