Goldman Sachs is making its position clear: expect a December rate cut, and treat any market turbulence between now and then as an invitation to buy.

The firm's chief economist Jan Hatzius said Monday that the delayed September jobs report "may have sealed a 25bp cut at the December 9–10 FOMC meeting." He's not alone in thinking this—New York Fed President John Williams recently signaled support for "a further adjustment in the near term," and traders are now pricing in a 73% probability of a December cut according to the CME FedWatch tool.

Labor Market Weakness Points to More Easing

The case for cutting rates isn't just theoretical. Hatzius points to some genuinely concerning labor market trends that suggest the economy needs easier monetary policy sooner rather than later.

Underlying job growth has slowed to a crawl—just 39,000 jobs per month. More troubling, unemployment among college graduates is rising sharply, particularly among younger workers where the jobless rate has reached 8.5%. This matters more than it might seem. College graduates make up over 40% of the labor force and account for most labor income, so when their job prospects deteriorate, consumer spending tends to follow.

Goldman expects the Fed to pause rate cuts in January 2026, but then resume in March and June, ultimately bringing the federal funds rate down to a terminal range of 3–3.25%. This outlook depends on their baseline forecast for U.S. GDP growth rebounding to 2–2.5% in 2026, supported by "reduced tariff drag, tax cuts, and easier financial conditions."

On the inflation front, Hatzius argues that "underlying inflation has fallen to near 2%." The headline 2.8% core PCE rate in September looks higher only because of temporary distortions—about "50–60bp from tariff pass-through and another 20bp from higher imputed financial services prices." Once those tariff effects fade by mid-2026, Goldman expects inflation readings to improve noticeably.

Staying Bullish Despite Near-Term Turbulence

Goldman's equity strategist Christian Mueller-Glissmann acknowledges that investors should expect some bumps ahead. The Invesco QQQ Trust (QQQ) has dropped more than 5% this month, heading toward its worst monthly performance since March.

But rather than backing away from risk, Mueller-Glissmann is leaning in. "With our friendly macro baseline into 2026, supported by policy easing, we would 'buy the dip,'" he said. Goldman is overweight equities for both three-month and twelve-month time horizons while staying underweight credit.

The bullish case rests on three pillars: earnings growth, Fed easing without a recession, and global fiscal stimulus. Goldman forecasts global real GDP growth of 2.8% in 2026 and expects global core inflation to fall to 2.2%, helped by easing pressures from tariffs, shelter costs, and wages.

As for concerns about stretched valuations in artificial intelligence stocks, Goldman's strategists don't see bubble conditions. "Our global equity strategy team does not think AI stocks are in a bubble," Mueller-Glissmann said, noting that "most are profitable and have strong balance sheets." High valuations, yes—but backed by actual earnings and solid fundamentals.

The message from Goldman is straightforward: the Fed is pivoting toward easier policy as the labor market softens, and that's ultimately positive for risk assets even if the path gets choppy in the near term.