• Goldman Sachs economists project the Federal Reserve will begin cutting interest rates in December 2025, continuing into 2026, potentially lowering rates to just above 3%.
  • Chief economist Jan Hatzius warns economic growth could slow more than expected, requiring additional cuts if labor market weakness persists.
  • Despite September's 119,000 new jobs, rising layoffs and unemployment climbing to 4.3% signal increasing labor market fragility.

Goldman Sachs is sounding a cautious note on the U.S. economic outlook for 2026, with chief economist Jan Hatzius warning that downside risks are mounting despite expectations for Federal Reserve rate cuts beginning later this year.

The investment bank's economic team now expects the Fed to initiate its easing cycle in December, followed by additional cuts through 2026 that could bring the benchmark rate to just above 3%. This forecast comes amid what Hatzius described as "entrenched weakness" in the labor market, where September's modest job gains of 119,000 positions are being overshadowed by a sharp increase in layoffs.

Through October, U.S. employers announced 1.1 million job cuts, pushing unemployment to 4.3% while inflation remained stubborn at 3% as of September. "The labor market data suggests underlying fragility that may not be captured in headline numbers," Hatzius noted in the firm's latest economic outlook. He added that if current trends continue, the Fed may need to cut more aggressively than currently anticipated.

The economic pressures are being compounded by recent government policies, including renewed tariffs that have raised import costs and contributed to inflationary pressures. These factors are squeezing household budgets even as job prospects weaken.

Goldman's analysis suggests the U.S. economy is approaching a delicate juncture. While the bank expects potential GDP to grow at approximately 2.1% annually from 2025 through 2029, this projection is contingent on technology-driven productivity gains offsetting labor market softness.

In response to the mounting uncertainties, Goldman has been advising clients to consider defensive positioning, including increased exposure to gold. The firm forecasts gold prices will climb significantly through 2026, citing ongoing central bank purchases and investor demand for safe-haven assets.

Efforts to reach Federal Reserve officials for comment on Goldman's rate cut projections were unsuccessful. A spokesperson for the Treasury Department declined to address the specific economic concerns raised in the report.

The cautious stance from one of Wall Street's most influential banks comes as other global economies show divergent paths. China, for instance, is forecast to see faster-than-expected GDP growth in 2026, boosted by manufacturing strength and supportive monetary policy—creating a potential divergence from the U.S. trajectory.

Correction: An earlier version of this article misstated the timeline for potential Federal Reserve rate cuts. Goldman Sachs expects cuts to begin in December 2025, not December 2024.