Goldman Sachs delays rate-cut forecasts
What happened
Goldman Sachs pushed back its expected timeline for rate cuts by both the Bank of England and the U.S. Federal Reserve. The firm cites inflationary pressures stemming from energy prices and the ongoing Middle East conflicts. This shift has direct implications for fixed income allocation and risk management, requiring recalibration of duration and spread risk.
Why it matters
Goldman Sachs now anticipates the first Fed rate cut in September, followed by another in December, a shift from their previous June forecast. This revision is primarily driven by escalating inflation risks tied to the ongoing conflict in the Middle East, particularly its impact on energy prices. The firm expects Brent crude to average around $98 per barrel in March and April, a substantial increase from the 2025 average. The conflict's potential to disrupt global oil supply routes, especially through the Strait of Hormuz, could further exacerbate inflationary pressures. Goldman Sachs estimates that a 10% increase in oil prices could push headline inflation up by about 0.2 percentage points. They now project headline PCE inflation to reach 2.9% by the end of 2026. Despite the delayed rate cut outlook, Goldman Sachs acknowledges that an earlier move is possible if the labor market weakens "sooner and more substantially than expected". However, even with rising oil prices, a significantly weaker labor market might prompt the Fed to prioritize rate cuts. Traders are currently pricing in a 41% chance of a 25-basis-point rate cut in September.
Key numbers
- The firm expects Brent crude to average around $98 per barrel in March and April, a substantial increase from the 2025 average.
- Goldman Sachs estimates that a 10% increase in oil prices could push headline inflation up by about 0.2 percentage points.
- They now project headline PCE inflation to reach 2.9% by the end of 2026.
- Traders are currently pricing in a 41% chance of a 25-basis-point rate cut in September.
What happens next
- The firm expects Brent crude to average around $98 per barrel in March and April, a substantial increase from the 2025 average.
- The conflict's potential to disrupt global oil supply routes, especially through the Strait of Hormuz, could further exacerbate inflationary pressures.
- Goldman Sachs estimates that a 10% increase in oil prices could push headline inflation up by about 0.2 percentage points.
Sources
Quick answers
What happened in Goldman Sachs delays rate-cut forecasts?
Goldman Sachs pushed back its expected timeline for rate cuts by both the Bank of England and the U.S. Federal Reserve. The firm cites inflationary pressures stemming from energy prices and the ongoing Middle East conflicts. This shift has direct implications for fixed income allocation and risk management, requiring recalibration of duration and spread risk.
Why does Goldman Sachs delays rate-cut forecasts matter?
Goldman Sachs now anticipates the first Fed rate cut in September, followed by another in December, a shift from their previous June forecast. This revision is primarily driven by escalating inflation risks tied to the ongoing conflict in the Middle East, particularly its impact on energy prices. The firm expects Brent crude to average around $98 per barrel in March and April, a substantial increase from the 2025 average. The conflict's potential to disrupt global oil supply routes, especially through the Strait of Hormuz, could further exacerbate inflationary pressures. Goldman Sachs estimates that a 10% increase in oil prices could push headline inflation up by about 0.2 percentage points. They now project headline PCE inflation to reach 2.9% by the end of 2026. Despite the delayed rate cut outlook, Goldman Sachs acknowledges that an earlier move is possible if the labor market weakens "sooner and more substantially than expected". However, even with rising oil prices, a significantly weaker labor market might prompt the Fed to prioritize rate cuts. Traders are currently pricing in a 41% chance of a 25-basis-point rate cut in September.
