Goldman Sachs Drops 2026 Fed Rate Cut Forecast Entirely After Strong May Jobs Data

The Quick Take

• Goldman Sachs no longer expects any Federal Reserve interest rate cut in 2026 following stronger-than-expected May jobs data
• The Goldman report followed firm US job growth for May that showed a resilient labour market, fuelling rate-hike expectations
• India's equity and currency markets face the most direct impact as FII outflow probability rises with no Fed cuts on horizon

Goldman Sachs has revised its Federal Reserve forecast to zero rate cuts in 2026, according to The Hindu BusinessLine, following the release of a strong May non-farm payroll report that showed the US labour market remains resilient. The shift from expecting multiple cuts to expecting none represents a significant consensus revision that will cascade through global asset price models. Goldman Sachs's forecasts carry substantial market influence — when the bank revises its central scenario, institutional investors that benchmark against Goldman's views often realign their own positioning.

The removal of all Fed cut expectations has distinct implications for India compared to other emerging markets. India has been benefiting from significant FII inflows through 2025-2026 partially driven by rate convergence expectations — as US rates were seen declining toward Indian rates, the differential was narrowing, making Indian assets more competitive on a risk-adjusted basis. Zero Fed cuts in 2026 reverses this thesis: the rate differential remains wide, making US dollar assets structurally more attractive than Indian rupee assets for yield-seeking foreign capital.

The macro variable is whether Goldman's revised view will require further adjustment — specifically whether the strong jobs data is a one-month anomaly or the start of a new trend. If the June jobs report (released in early July) also exceeds expectations, Goldman may be forced to revise its forecast from zero cuts to potential rate hikes. Watch the June FOMC statement's characterisation of the labour market: any language upgrade from 'moderately slowing' to 'strong' would be the precursor to a rate-hike scenario that would dramatically accelerate emerging market capital outflows.

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