Cooling jobs data might beat out inflation in forcing the Fed to deliver a big rate cut, Goldman Sachs CEO says

• Cooling labor data could still lead the Fed to cut rates by 50 basis points, Goldman Sachs' David Solomon says.
• "I think the percentage chance is in the low 30s," Solomon said of a 50 basis point cut.
• The slightly hotter August CPI reading tilted the odds further in favor of a 25 basis point cut.

It wasn't long ago that Goldman Sachs CEO David Solomon forecasted there could be no rate cuts from the Federal Reserve this year.

Now, even as the latest inflation data has most investors pricing in a 25 basis point cut in September, Solomon says a larger cut could still be in the cards.

In an interview with CNBC on Wednesday, he pointed to weakening jobs data, which he says could warrant a bigger cut if labor conditions continue to soften.

"Our best guess is 25 [basis points]. But I think there's a case to be made for 50 [basis points] based on a little bit more softening in the labor market," Solomon told CNBC in a Wednesday interview.

"I think the percentage chance is in the low 30s," he said of a 50 basis point cut.

Solomon said the depth of rate cuts will likely depend on further labor market data, which has flashed mixed signals in the last two months.

A surprise unemployment rate increase in July sparked worries of a recession, while the August jobs report brought the unemployment rate down slightly to 4.2%, in line with expectations.

Solomon forecasts the Fed will make two to three rate cuts this fall, and any further cuts will depend on progress toward the central bank's 2% inflation goal.

"We have to watch carefully the trajectory of inflation, and also the trajectory of growth. And candidly, it's very hard to speculate about that as you look forward because the policy direction we're going to have as we look into 2025 and 2026 is very uncertain," he said.

Solomon's comments come after the highly-anticipated August consumer-price index was a mixed bag of data.

The annual inflation rate eased to 2.5%, slower than forecasts and down from 2.9% in July. However, monthly core inflation—which excludes food and energy prices— rose unexpectedly to 0.3%, up from 0.2% in July.

Those numbers have most investors pricing in a 25 basis point rate cut at next week's Fed policy meeting.

"Amidst the debate over the magnitude of the first Fed rate cut, the August CPI data helped solidify the case for a 25bps rate cut at the September 18 meeting, rather than a 50bps reduction," EY economist Lydia Boussour said in a Wednesday note.

Solomon said he continues to predict a 25 basis point cut, and is "predominantly in the soft landing camp," he said.