Goldman Sachs Defies Oil Surge with Bold 2026 Fed Rate Cut Forecast

Amid the ongoing US-Iran war and rising inflation, the Federal Reserve’s rate cuts remain uncertain. But Goldman Sachs hints that Fed rate cuts are possible this year, but may be delayed.

According to Chief US economist David Mericle, the Fed is likely to stay cautious, balancing persistent inflation pressures with early signs of a cooling labour market. While rate cuts are still on the table this year, the timeline may now be pushed further out.

Fed Rate Cuts Likely But Delayed in 2026, Says Goldman Sachs

Goldman Sachs Chief US economist David Mericle stated that the US Fed rate cuts may be delayed this year. This statement indicates that the interest rate cut is still possible, though delayed. “We’ve pushed back our expectation of Fed cuts to September and December,” stated Mericle.

Despite the labour market’s early signs of cooling, the central bank remains stubborn, stated the Goldman Sachs analyst. According to the analyst, the Fed rate cut is more likely to happen in September and December. He added that while inflation remains a concern, a gradual cooling in jobs data could still give the Fed room to ease policy later this year. 

Goldman Sachs’ projection comes on the heels of Chicago Fed President Austan Goolsbee’s critical statement. The Fed President stated that the Fed may hike interest rates as inflation rises.

The Goldman Sachs analyst also noted that the ongoing global tensions can be a major reason for the delay in the Fed rate cuts. He believes that the disruption of oil supply via the Strait of Hormuz could last longer, further delaying the rate reductions.

As the Middle East tensions continue to escalate, oil prices are on a sustained rally. Higher oil prices could further complicate the Fed’s job by pushing inflation higher and affecting economic growth both in the US and globally.

Is a FED Rate Hike On Table as War Fuels Inflation Risks

Notably, the Goldman Sachs analyst stated that the ongoing US-Iran war puts the Federal Reserve in a complicated situation. As currently there are no signs of an end, it remains unclear what the Fed would potentially decide.

Recently, the Federal Reserve announced its decision to hold the interest rates unchanged at 3.50%-3.75%. This has been highly anticipated. Now the market anticipates that the central bank may even increase the rates. As CoinGape reported, the Bank of America projected the Fed’s possible move to hike interest rates.

Even before the war, Fed officials were divided. Some were worried about a slowing job market, while others wanted to wait until inflation moved closer to the 2% target. The ongoing conflict has made things more difficult by increasing both inflation and growth risks.

Despite this, there is still an expectation of two rate cuts this year. A modest slowdown in the labour market and relatively stable underlying inflation could give the Fed enough reason to ease policy. The Fed funds rate is also expected to gradually move toward a more neutral range of around 3% to 3.25%.