Goldman Sachs delays Fed cut outlook to December 2026 as Iran war drives US inflation

Goldman Sachs has pushed back its forecast ​of U.S. Federal Reserve rate ​cuts to December 2026 ‌and March ​2027 from its previous outlook of cuts in September and December this year, saying high energy prices ‌would likely keep inflation elevated. A host of global brokerages have pared back expectations for U.S. rate cuts in 2026, split between some easing and no cuts ‌at all, as the ongoing 10-week-old Middle East war has pushed energy prices ‌higher and left policymakers cautious about inflation risks.

"With energy cost passthrough likely to keep year-over-year core PCE inflation closer to 3% than 2% all year, we think that a combination of ⁠lower ​monthly inflation prints ⁠after the oil shock fades and further labor market softening will likely be needed for the ⁠FOMC to cut this year," the brokerage said in a note dated May 8. The ​Fed held rates steady at its April 29 meeting in an unusually ⁠divisive 8–4 vote, the closest since 1992. U.S. inflation remains well above the Fed's 2% target.

Traders ⁠expect ​the central bank to hold interest rates steady in the 3.50% to 3.75% range until the end of the year as per the ⁠CME Fedwatch tool. "If the labor market does not weaken sufficiently this year, we would ⁠instead expect ⁠the FOMC to deliver two final cuts in 2027, when we expect core inflation to return to the 2% ‌target," Goldman Sachs ‌said.

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