Goldman delays Fed rate cuts

Interest rates are back in “higher for longer” territory — at least in Goldman Sachs’ view. The bank now thinks the Federal Reserve won’t deliver its next two rate cuts until December 2026 and March 2027, which is later than it had expected just days ago. That shift matters because rate-cut timing feeds directly into mortgage rates, bond yields, stock valuations, and the basic market story people have been trading on. (bloomberg.com) The gap is simple: investors keep looking for a clean path back to lower rates, but inflation still isn’t cooperating. ### What changed? Goldman didn’t call for a hike. But it did move the next cuts back by one quarter each, from earlier expectations to December 2026 and March 2027. (cnbc.com) Basically, the bank is saying the Fed will need more time before inflation looks tame enough to justify easing again. ### Why is inflation the problem again? The specific issue is core PCE — the Fed’s preferred inflation gauge. Goldman thinks higher energy costs will keep spilling into other prices, leaving core PCE closer to 3% than 2% through the year. That’s the catch with oil and fuel shocks: even if gasoline is the obvious headline, the second-round effects show up in shipping, services, and a lot of everyday goods. (bloomberg.com) ### Why does energy pass-through matter so much? Because the Fed can usually look through a one-off oil spike if it stays isolated. But when higher energy costs leak into broader inflation, the central bank worries that “temporary” becomes sticky. Goldman’s call is really a judgment that this pass-through will be persistent enough to delay the moment when policymakers feel safe cutting again. (bloomberg.com) ### Where is the Fed right now? The Fed held the federal funds target range at 3.5% to 3.75% in March, and it kept that stance again at the April 29 meeting. The official language still says the committee will watch incoming data and the balance of risks. In plain English, that means officials are not ready to promise cuts on a schedule. (bloomberg.com) ### Why are people talking about a hawkish pause? Because the pause is not especially calm. At the April 29 meeting, the FOMC held rates steady but split 8-4 — the most dissents at a meeting since 1992. One official wanted a cut, while others pushed back against any suggestion that easier policy was around the corner. That kind of division tells markets the Fed is less unified than usual and more sensitive to upside inflation risk. (bloomberg.com) ### Does this mean cuts are off the table? No — just later. Goldman is still forecasting cuts, not a permanent freeze. But the timeline shift matters because markets care less about whether rates eventually fall and more about when the first move happens. A cut in late 2026 is a very different world from a cut in mid-2026. (federalreserve.gov) ### Who feels this first? Anyone borrowing money, for one. If markets accept the “later cuts” story, Treasury yields can stay elevated and borrowing costs can stay annoying for longer — mortgages, corporate debt, auto loans, the whole chain. Stocks can still do fine, but the parts of the market that depend most on cheap money lose some support. That is why a forecast revision from one big bank can ripple so quickly. (cnbc.com) ### So what’s the real takeaway? The story is not that Goldman discovered something magical. It’s that the old hope — inflation cools, the Fed cuts soon, everyone moves on — keeps getting delayed by the same stubborn fact. Prices are still running too hot, and now even the Fed looks less settled about the path ahead. (bloomberg.com) For markets, that keeps the rate-cut countdown alive — but pushes the clock further out.