Goldman Sachs: The Federal Reserve is more willing to cut interest rates again next year, and employment data may become a “trigger” for interest rate cuts

The Zhitong Finance App learned that Goldman Sachs Group said that after policy easing this week and Chairman Jerome Powell showing significant caution about labor market risks, the Federal Reserve may be more willing to cut interest rates next year than previously anticipated by the market. A lower interest rate cut threshold supports a steeper yield curve, putting marginal pressure on the dollar and increasing sensitivity to upcoming labor market data.

Josh Shifflin, chief strategist and head of financial risk at Goldman Sachs Global Banking and Marketing, said that Powell's press conference at this time last week suggested that concerns about the sustainability of employment conditions within the Federal Reserve are growing. Although the central bank's basic forecast is to keep interest rates stable and evaluate subsequent data, Shiffrin believes that the threshold for additional interest rate cuts may be lower than the level feared before the meeting.

Powell acknowledged that the labor market continues to gradually cool down, but warned that recent employment data may exaggerate potential employment growth. He emphasized what he described as a significant downside risk to labor conditions, which shows that the Federal Reserve is increasingly sensitive to signs of deterioration rather than overheating.

Goldman Sachs believes this shift in focus makes upcoming labor market data critical to shaping policy expectations. Shiffrin said that the next few employment reports will be the key to deciding whether the Federal Reserve will resume its easing policy. In particular, it is necessary

We need to focus on the unemployment rate rather than the overall increase in non-farm payrolls.

Looking further into the future, Goldman Sachs expects the easing cycle to continue until 2026, and the federal funds target interest rate may drop to 3% or less. This outlook reflects the view that inflation will continue to ease while labor market slack will intensify, thus providing space for the Federal Reserve to lift remaining policy restrictions.

In terms of the interest rate market, Shiffrin expects the yield curve to steeper as short-term yields are lowered due to policy easing, while long-term yields are supported by supply dynamics and term premiums. For the US dollar, this combination of falling interest rates and a steeper curve indicates that the medium term trend will be weak, especially when labor data confirms the growing concerns of the Federal Reserve.