Goldman Sachs Pushes Fed Cut Outlook To Late 2026 As Energy Shock Keeps Inflation Elevated

Goldman Sachs has shifted its expectations for U.S. Federal Reserve interest rate cuts to December 2026 and March 2027, citing persistent inflation pressures driven largely by elevated energy costs linked to ongoing geopolitical tensions in the Middle East.

The bank’s updated view replaces an earlier forecast that had anticipated rate reductions in September and December of this year. It now sees a slower path toward monetary easing as inflation remains above the Federal Reserve’s long-term target and energy-driven price pressures continue to feed into broader economic indicators.

Goldman Sachs said energy cost pass-through effects are likely to keep core personal consumption expenditures inflation closer to 3% than 2% for much of the year. The assessment, cited in market reporting by Reuters, highlights how sustained oil price strength is complicating the inflation outlook for the U.S. economy.

The bank added that any policy shift would likely require clearer signs of easing monthly inflation data after the impact of the oil shock fades, along with additional softening in labor market conditions. Without those developments, Goldman Sachs indicated that rate cuts could be pushed further into 2027, when inflation is expected to move closer to the Federal Reserve’s 2% target.

The reassessment comes as the Federal Reserve continues to hold rates at elevated levels. At its April 29 meeting, the central bank voted 8-4 to keep interest rates unchanged, one of the narrowest splits in decades, reflecting internal disagreement over how long restrictive policy should remain in place. The Fed’s stance has been shaped by inflation readings that continue to run above target, according to CNBC.

Market pricing reflects a similar expectation of prolonged stability. Traders are currently anticipating that the Federal Reserve will maintain interest rates within the 3.50% to 3.75% range through the end of the year, based on CME FedWatch data tracked by Bloomberg.

Global brokerages have increasingly aligned with this more cautious outlook, scaling back expectations for rate cuts in 2026. Some now see limited easing while others forecast no cuts at all, as inflation remains persistent across major economies. A key factor behind the shift has been the sustained rise in energy prices, which has been tied to ongoing instability in the Middle East.

Oil markets have been particularly sensitive to developments in the region, where a prolonged conflict involving Iran and Israel has contributed to supply uncertainty and price volatility. The disruption has fed into global inflation dynamics, adding pressure to economies already managing elevated borrowing costs and slowing growth, as reported by Reuters.

Energy price transmission into consumer inflation has remained a central concern for policymakers. Higher fuel and transport costs have continued to influence broader price indices, making it more difficult for inflation to return to target levels without a broader easing in commodity markets or demand conditions.

The Federal Reserve has maintained a cautious approach, balancing inflation control against signs of gradual cooling in parts of the U.S. economy. While inflation has eased from its peak, it remains above the central bank’s 2% objective, limiting room for near-term policy easing.

Goldman Sachs also noted that if labor market conditions fail to weaken meaningfully this year, the Federal Reserve could instead deliver two final rate cuts in 2027, when inflation is expected to stabilize closer to target levels.