The S&P 500 saw gains following recent Federal Reserve communications, with Goldman Sachs maintaining its forecast of two rate cuts in 2026 amidst concerns over overstated payroll growth. The market is reacting to signals that the Fed may adopt a more accommodative monetary policy.
Following the latest FOMC decision and Chair Powell’s press conference, the S&P 500 ended the day 0.67% higher following market anticipation of potential easing, reflecting a bullish response to what is perceived as a dovish shift in the Fed’s stance. This occurred even as U.S. central bankers remain split, with the median seeing one rate cut in 2026.
Goldman Sachs Chief U.S. Economist David Mericle highlighted that the Fed believes payroll growth is overstated by approximately 60,000 jobs per month, significantly higher than Goldman’s initial estimate of 30,000-35,000. This suggests that the reported 40,000 monthly job gain between May and September could, in reality, represent a decline of around 20,000 jobs. Powell stated that a scenario of negative job creation is something the FOMC needs to watch “very carefully”.
Goldman Sachs maintains its projection of two 25-basis-point rate cuts in March and June 2026, targeting a terminal rate between 3.00% and 3.25%. This forecast is predicated on expectations of continued economic moderation and the Fed’s commitment to supporting the labor market.
It is also notable that Powell stated that no rate hike is expected ahead. However, the market is still carefully interpreting the Fed’s forward guidance, with U.S. rate futures indicating increased odds of a rate pause in January but still pricing in two cuts in 2026.
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Bull Case:
- Fed dovishness signals potential for accommodative monetary policy.
- Goldman Sachs forecasts rate cuts in 2026, supporting economic growth.
- S&P 500 reacts positively to perceived Fed easing.
Bear Case:
- Overstated payroll growth creates uncertainty about economic strength.
- Divergence between Fed and external data may increase volatility.
- Central bankers split on rate cuts, casting doubt on future policy.
