Goldman Sachs Delays Fed Rate Cut Timeline Expectations, Forecasts One Rate Cut Each in September and December

Goldman Sachs delays its forecast for the Federal Reserve’s rate cuts, citing rising inflation risks triggered by the Middle East conflict. Currently, it expects the Fed to cut rates by 25 basis points in September and December, compared to previous predictions of one cut in June and another in September.

Due to concerns over oil supply shocks, escalating inflation, and uncertain economic outlook caused by the Iran conflict, global financial markets have been under pressure.

In a report on Wednesday, Goldman Sachs stated, “We expect the labor market to weaken further by September, and potential inflation to make some progress, which will help support rate cuts.” The report also added that if the pace and extent of labor market weakness exceed expectations, the possibility of an earlier rate cut remains.

Goldman strategists said that the weak February employment report has heightened concerns about further cooling in the U.S. labor market, and slowing GDP growth along with rising geopolitical risks could increase the likelihood of the Fed cutting rates early.

The bank added that if the labor market weakens enough to warrant an early rate cut, concerns about rising oil prices pushing up inflation or inflation expectations are unlikely to prevent the Fed from easing monetary policy ahead of schedule.

Currently, traders estimate about a 41% chance that the Fed will cut rates by 25 basis points in September. The market generally expects the Fed to keep the benchmark interest rate unchanged at the policy meeting scheduled for March 17-18.