Goldman Sachs has pushed back its expected timeline for U.S. Federal Reserve interest-rate cuts, now projecting quarter-point reductions in September and December 2026 rather than the previously anticipated June start, according to a research note published Wednesday.
The revision comes amid heightened concerns over inflation pressures stemming from the ongoing U.S.-Iran conflict and its impact on global energy prices, even as recent labor-market softening keeps the door open for earlier action if needed.
The Wall Street firm had previously forecast the Fed to begin easing in June, followed by another cut in September. In the updated outlook, Goldman strategists wrote: “By September, we expect both some further labor market softening and progress on underlying inflation to contribute to the case for a cut.”
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They added that earlier reductions remain possible “if the labor market weakens sooner and more substantially than expected.”
The note arrives against a backdrop of significant market turbulence driven by the Middle East conflict, now in its second week. Brent crude futures have surged past $104 per barrel in recent sessions — levels not seen since mid-2025 — after U.S. and Israeli strikes on Iran disrupted production and led to a near-total halt in shipping through the Strait of Hormuz. Goldman highlighted that sustained energy-price increases could feed into broader inflation and inflation expectations, complicating the Fed’s path to policy normalization.
Despite the oil shock, the brokerage emphasized that a sufficiently sharp deterioration in labor-market conditions would likely override inflation concerns.
“If the labor market weakens enough to warrant earlier rate cuts, concerns about higher oil prices feeding into inflation or inflation expectations are unlikely to prevent the Fed from easing sooner,” the strategists wrote.
Labor Market and Inflation Signals
A weaker-than-expected February jobs report has kept alive concerns over cooling employment momentum, with nonfarm payrolls growth slowing and the unemployment rate ticking higher in recent months. Goldman sees this trend as supportive of eventual easing but not yet decisive enough to prompt immediate action.
Traders are currently pricing in only a ~41% probability of a 25-basis-point cut at the Fed’s September meeting, according to CME Group’s FedWatch tool. The central bank is widely expected to leave its benchmark rate unchanged at the upcoming two-day policy meeting ending March 18, with February CPI data (due Wednesday) and core PCE inflation (due Friday) likely to show persistent pressures above the 2% target.
The Fed outlook revision reflects a broader risk-off environment. Global equities have come under pressure, with the pan-European STOXX 600 down 0.7% Wednesday after earlier steep declines. Asian stocks were mixed overnight, while U.S. futures traded flat. The U.S. dollar has strengthened as the dominant safe-haven asset, gaining ground against major peers despite geopolitical uncertainty.
The Middle East conflict continues to dominate sentiment. Iran has declared the Strait of Hormuz closed, with threats to attack vessels, halting tanker traffic, and driving up freight rates. Saudi Arabia’s Ras Tanura refinery remains offline after a drone strike, and disruptions persist across Iraqi Kurdistan fields and Israeli gas production. The IEA has proposed the largest-ever release of strategic reserves, and G7 energy ministers have endorsed using stockpiles, though no coordinated action has been confirmed.
Implications for Monetary Policy and Economic Growth
Goldman’s delayed timeline aligns with a growing consensus that energy-driven inflation could delay the Fed’s easing cycle. A sustained oil-price shock — if the conflict prolongs — would raise input costs, fuel inflation expectations, and potentially force the Fed to hold rates higher for longer, weighing on growth-sensitive sectors.
However, the brokerage stressed that labor-market weakness could override inflation concerns. If payrolls deteriorate further and unemployment rises meaningfully, Goldman sees the Fed prioritizing employment support over temporary energy-price pressures — a view consistent with the central bank’s dual mandate.
For markets, the revised outlook adds to near-term uncertainty. Higher-for-longer rates would pressure rate-sensitive assets (tech, real estate, small caps) while supporting the dollar and financials. Energy equities and commodities remain beneficiaries, though volatility is elevated.
The Fed’s March meeting will provide the next major signal, with CPI and PCE data likely to shape expectations for the balance of 2026. If Middle East tensions ease and oil prices stabilize, Goldman’s September-December timeline could prove conservative. If the conflict drags on or escalates, inflation risks rise, potentially pushing rate cuts even further out.
So far, the conflict is showing no clear sign of ending, and energy markets remain in flux, exposing economies to a dilemma.