Wall Street is booming, but Goldman Sachs isn’t convinced that lower interest rates are around the corner.
In an interview with CNBC, Goldman Sachs COO John Waldron reiterated the bank’s view that the Federal Reserve could start cutting interest rates by the close of 2026.
Put simply, Americans may have to wait multiple months before seeing meaningful benefit from today’s elevated borrowing costs.
Waldron pointed to inflation, which remains elevated across the economy, making it difficult to justify near-term interest rate cuts.
The most recent read-through on the U.S. inflation supports that view.
April CPI surged 3.8% year-over-year, up substantially from around 3.3% in March, while core CPI rose by 2.8%, above the Fed’s 2% target.
Additionally, the Fed’s preferred PCE gauge ran hot as well, with headline PCE at 3.8% along with core PCE at 3.3% in April.
On a more positive note, Waldron remained bullish on AI stocks, citing durable strength across the ecosystem.
A simple market read-through supports that view.
The Global X Artificial Intelligence & Technology ETF (AIQ), for instance, is up 38% year-to-date and over 20% in the past month alone.
Yet even as we see investors embracing more risk, Goldman Sachs signals that the economic backdrop might not support lower rates anytime soon.
Goldman Sachs has become more cautious on rate cuts
Waldron’s comments largely reinforce Goldman Sachs’ already cautious outlook.
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In May, Goldman Sachs pushed back on its outlook for the highly anticipated first Fed rate cut, citing sticky inflation, elevated energy prices, and a resilient labor market.
Here’s how the bank’s forecast has evolved.
- July 2025: Goldman Sachs Research forecasts rate cuts in September, October, and December 2025, followed by additional cuts in March and June 2026, with the federal funds rate at 3% to 3.25%.
- December 2025: Goldman persisted with its rate-cut outlook but pointed to a slower path.
- May 2026: Goldman pushed its rate cut timeline to December 2026, followed by another reduction in March 2027, on the back of heightened inflationary pressures.
Why Goldman Sachs remains cautious on rate cuts
As mentioned earlier, Waldron’s bearish view on faster rate cuts is largely driven by concerns over inflation.
He said he approached the issue as “more of a practitioner, not an economist,” but he sees “a lot of inflation in the economy.”
Gas prices remain painfully high, with AAA showing regular gasoline at a frightening $4.24 a gallon, comfortably above $3.14 a year ago, though tracking behind the June 2022 record of $5.02.
In April, shelter and food prices jumped 0.6% and 0.5%, respectively, while food at home was up 2.9% from a year earlier, which gives the Fed multiple reasons to avoid rushing into rate cuts.
That assessment has him saying that “it’s less likely that we may see a cut right at the moment,”
At the same time, Waldron struck an optimistic tone on AI and tech stocks.
Though most investors feel valuations are stretched to the limit, he feels that the current market conditions resemble those of previous bubbles.
He argued that there’s currently “more greed than fear in the market,” primarily because “we are seeing extraordinary demand for anything that is in that AI ecosystem.”
More importantly, he argued that the AI boom hasn’t reached its most valuable phase, describing the current setup as more of an “infrastructural build phase of this revolution”.
This is essentially the phase in which businesses shell out heavily for data centers, chips, and computing capacity.
The next phase could be even bigger.
Businesses will now shift toward applications and deployment, “we will see like another up,” though leadership within the sector might change.
That unique transition will likely cause stocks to “readjust” as investors allocate more capital to businesses that benefit most from practical AI use.
AI gains keep driving the Magnificent Seven trade
The AI trade still remains one of the biggest forces holding up the market.
Goldman Sachs Research, in a recent report, said that AI-infrastructure beneficiaries are likely to account for 50% of S&P 500 earnings growth this year, while hyperscaler tech capex could rise to $754 billion in 2026 and $905 billion in 2027.
However, that also raises concentration risk, where Goldman Sachs flagged that AI-linked stocks account for just 45% of the S&P 500, up from 25% in late 2022.
The biggest AI stocks still show that the trade is hard to bet against.
For perspective, Nvidia stock is up 15% year-to-date and over 8% in the past 30 days.
Similarly, Alphabet stock is up 15% year-to-date, despite a recent 6% 30-day pullback. At the same time, Apple has gained 14% year-to-date, and 12% over 30 days, while Amazon’s up 8% year-to-date, even after an 8.10% 30-day slide.
Nevertheless, the picture isn’t perfectly clean, though.
Microsoft is down 11.24% year-to-date, Meta is down 5.54%, and Tesla is down 5.79%, even though all three posted positive 30-day gains.
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