Goldman Sachs Eyes US Growth, Inflation Tame, Forecasts Two Fed Rate Cuts
Overview
Goldman Sachs economists predict a robust US economic expansion for 2026, fueled by tax cuts, wage growth, and AI-driven productivity gains. They anticipate inflation will moderate to 2.1% for core PCE, projecting two Federal Reserve interest rate cuts in June and September. The outlook highlights a shift towards productivity over labor supply, with potential risks of jobless growth emerging.
US Economy Poised for Growth, Inflation to Moderate
Goldman Sachs Group Inc. economists forecast a strong year for the U.S. economy in 2026, driven by sustained tax cuts, real wage gains, and increased wealth. Inflation is expected to moderate, setting the stage for the Federal Reserve to implement two interest rate reductions. The bank's 2026 US Economic Outlook report, released January 11, details these projections.
Productivity Shift to Drive GDP
Chief US economist David Mericle noted that GDP growth composition will evolve. The economy will increasingly rely on productivity, bolstered by artificial intelligence advancements, rather than labor supply growth, which has been constrained by lower immigration. Goldman Sachs projects GDP growth at 2.5% on a Q4/Q4 basis, or 2.8% for the full year.
Inflation and Labor Market Outlook
Core PCE inflation is forecast to reach 2.1% year-over-year by December, with core CPI slowing to 2%. The baseline unemployment rate is expected to stabilize at 4.5%. However, a risk of "jobless growth" exists as companies integrate AI to reduce labor costs. Goldman economists assume the upcoming mid-term elections will elevate cost-of-living concerns, deterring the White House from enacting significant new tariff increases.
Consumer and Business Investment Strength
Consumer spending is anticipated to grow steadily, supported by ongoing tax benefits and rising real wages. Business investment is predicted to be the most significant component of GDP growth in 2026. This surge is attributed to easier financial conditions, a reduction in policy uncertainty, and available tax incentives, according to Mericle.
