Goldman Sachs has pushed back its forecast for the first US interest-rate cut, saying higher energy prices and the risk of stickier inflation linked to the Middle East conflict are likely to keep the Federal Reserve cautious for longer.
The bank now expects the Fed to deliver its first rate cut in December 2026, later than it had previously forecast.
The shift reflects a growing view on Wall Street that rising oil prices could delay progress on inflation, leaving policymakers with less room to ease even if growth begins to cool.
Goldman pushes back its call
In a research note dated May 8, Goldman said the pass-through from higher energy costs into core prices was likely to keep inflation firmer than previously expected.
The bank said core personal consumption expenditures inflation, the Fed’s preferred underlying gauge, was now likely to stay closer to 3% than 2% for much of this year.
That matters because the Fed has repeatedly stressed that it needs greater confidence inflation is moving sustainably back to target before it can begin lowering borrowing costs.
If energy prices remain elevated for an extended period, that process becomes harder to judge, especially if fuel and transport costs begin feeding more broadly into the prices of goods and services.
Goldman’s updated call also suggests the bank sees fewer clear openings for the Fed to pivot in the near term.
Instead of preparing for earlier easing, the focus has shifted to how long rates may need to stay restrictive if inflation proves more persistent than expected.
Oil and inflation reshape the outlook
The immediate driver behind the revised forecast is the Middle East conflict, which has unsettled energy markets and kept oil prices under pressure to the upside.
Higher crude prices do not automatically translate into a lasting inflation problem, but they can complicate the Fed’s task by lifting input costs and influencing inflation expectations.
Goldman’s view is that this energy shock is significant enough to alter the path of policy.
Even if the labour market softens somewhat, the bank appears to believe that inflation risks could still dominate, making it harder for the central bank to justify an early move towards lower rates.
That marks a more cautious stance than the one investors had hoped for earlier in the year.
It also aligns with a broader shift among major brokerages, several of which have recently reduced their expectations for the number of Fed cuts over the coming year, with some now looking for only limited easing and others for none at all.
Markets are also staying cautious
Market pricing points in a similar direction.
Futures markets currently imply that US rates are likely to remain in a 3.50% to 3.75% range through the end of the year, suggesting investors do not expect a rapid move towards easier policy.
That view has been reinforced by the Fed’s own recent messaging.
Policymakers have signalled they remain focused on inflation risks, and any renewed pressure from energy would make them even less likely to move quickly.
For investors, that means the interest-rate debate is no longer centred on when cuts begin, but on what could force the Fed to wait even longer.
What could change the timeline
The main factor that could alter Goldman’s forecast would be a sharper deterioration in the labour market.
The bank said that, assuming employment conditions do not weaken enough next year, it would expect the Fed to deliver two final cuts in 2027 as core inflation moves back towards target.
Until then, the argument for patience is likely to dominate.
Goldman still appears to believe that US rates will eventually move lower, but its latest call makes clear that the route back to easier policy may be slower and more vulnerable to oil-driven inflation shocks than previously thought.
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