Goldman Sachs has pushed back the Fed’s next expected rate cut to 2027, while JPMorgan expects the Fed to remain on hold this year.
Homebuyers looking for lower borrowing costs may have to wait until next year.
Goldman Sachs Research this week brought forward its forecast for the Federal Reserve’s next interest rate cut to 2027, but the outlook is now more cautious as the housing market remains highly sensitive to even small changes in mortgage rates.
David Mericle, Goldman’s chief U.S. economist, now expects the Fed to cut rates in June and December 2027, instead of the expected cuts in December 2026 and March 2027. Separately, strategists at JPMorgan Wealth Management also expect the central bank to keep interest rates on hold until the end of this year, as inflation remains above target and energy prices add uncertainty.
For housing, the forecast points to a well-known problem: buyers, sellers, and agents may be waiting longer than expected for monetary policy to provide meaningful affordability relief through lower borrowing costs.
Although the Fed does not directly set mortgage rates (which more closely track investor expectations and long-term bond yields), expectations for Fed policy influence the broader interest rate environment, and the central bank’s stance on increasing long-term interest rates is helping to keep borrowing costs higher for homebuyers after one of the most affordable conditions in recent housing market history.
Fragile housing rebound
The latest forecast comes after recent housing data showed how much buyer demand remains dependent on developments in mortgage rates.
Existing home sales rose 3.2% in May to a seasonally adjusted annual rate of 4.17 million, the highest level since December, according to the latest statistics from the National Association of Realtors. As mortgage interest rates were eased in early spring, some households moved ahead with their purchases, leading to an increase in inventory and giving buyers more options.
However, a separate review of pending contracts indicated that the recovery was more fragile. May’s closing deals reflect decisions made by buyers several weeks ago, when interest rates briefly fell. Pending sales, a more up-to-date picture of buyer activity, were nearly flat as mortgage rates rose again.
Goldman’s Mericle wrote that recent U.S. economic activity and labor market data have been stronger than expected, with job growth accelerating in recent months. Goldman now expects the unemployment rate to rise slightly to 4.4% this year from 4.3% in May, down from its previous forecast of 4.6%.
“This rise in unemployment is not enough to create a sense of urgency to lower the funds rate,” Mericle wrote.
Goldman also expects inflation to remain above the Fed’s 2% target this year. The company said it expects year-on-year inflation in core personal consumption spending to remain above 3% through 2026 due to high oil prices, Middle East wars and demand related to artificial intelligence, although the impact of tariffs should start to wear off soon.
Fed may keep policy unchanged until 2026
JPMorgan has a similar outlook in the short term. JPMorgan Wealth Management said in a recent note about the first Federal Reserve meeting chaired by Kevin Warsh that strategists expect the Fed to keep interest rates on hold through the end of the year. The federal funds rate has remained in the range of 3.5% to 3.75% since December 2025.
“The Fed is not expected to move interest rates at its June meeting and we believe rates will remain unchanged for the remainder of 2026,” Phil Campore, chief investment strategist at JPMorgan Wealth Management, said in a note.
While neither Goldman nor JPMorgan said rate hikes were their base case, both institutions acknowledged that policymakers were becoming more cautious as inflation remained high. Goldman said a rate hike was unlikely but somewhat more likely than before, noting that if inflation worsens, the risk of further tightening could be lower if economic and labor market data are strong.
“A stronger economic starting point reduces the risk that raising rates will ultimately look like a costly mistake,” Mericle said.
JPMorgan similarly said its base case for the Fed to keep interest rates on hold until the end of the year remains, but that a move in either direction is not completely off the table. But for the housing market, the message is very simple. If interest rates remain high, it may be difficult to sustain a sales recovery based on lower borrowing costs.
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