TL;DR
Goldman Sachs has revised its forecast, now expecting the Federal Reserve to postpone rate cuts until late 2026 and early 2027 because inflation remains higher than anticipated. This reflects ongoing concerns about sticky inflation driven by energy costs.
Goldman Sachs has revised its forecast, now expecting the Federal Reserve to delay its next interest rate cuts until December 2026 and March 2027, citing persistent inflation pressures.
According to Goldman Sachs’ US economists, the delay is driven by inflation proving more persistent than previously expected. The firm’s May 8 report indicates that energy cost passthrough is likely to keep core PCE inflation closer to 3% throughout 2026, rather than reaching the Fed’s target of 2% within the same period.
This revised forecast pushes back the timing of the Fed’s anticipated rate cuts by about three to six months. Previously, Goldman Sachs had expected the Fed to begin easing policy in mid-2026, but now anticipates that the conditions for rate reductions will not be met until late 2026 or early 2027.
Why It Matters
This shift in projections signals a potential prolongation of tighter monetary policy, which could impact borrowing costs, investment, and economic growth in the US. For markets, the delay suggests that inflationary pressures are more entrenched than previously thought, possibly influencing investor expectations and financial conditions.
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Background
Goldman Sachs’ revised outlook reflects broader concerns about inflation remaining elevated despite recent monetary tightening. The Fed has been gradually raising interest rates over the past year to combat inflation, which hit multi-decade highs last year. However, inflation has shown signs of sticking around longer than anticipated, partly due to ongoing energy price pressures and other supply chain issues.
Prior to this update, many analysts and market participants expected the Fed to begin rate cuts starting mid-2026, assuming inflation would moderate as supply chains normalized and energy prices stabilized. Goldman Sachs’ new forecast indicates a more cautious approach, aligning with some other economists’ views that inflation might remain above target longer than initially projected.
“The delay is driven by inflation proving more persistent than previously expected. Energy cost passthrough is likely to keep core PCE inflation closer to 3% throughout 2026.”
— Goldman Sachs US economist team
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What Remains Unclear
It is still unclear whether inflation will decrease more rapidly than Goldman Sachs anticipates or if external shocks could further delay the timing of rate cuts. The economic environment remains unpredictable, and future data releases could alter the forecast.
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What’s Next
Next steps include monitoring upcoming inflation data, energy prices, and Federal Reserve communications. Market participants will also watch for any changes in Fed policy signals or economic indicators that could influence the timing of rate adjustments.
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Key Questions
Why has Goldman Sachs delayed its forecast for Fed rate cuts?
Goldman Sachs delayed its forecast because inflation has proven more persistent than previously expected, mainly due to ongoing energy cost pressures that are likely to keep core inflation above the Fed’s 2% target through 2026.
How might this delay affect the economy?
The delay in rate cuts suggests that borrowing costs may stay higher for longer, potentially slowing economic growth and affecting investment and consumer spending.
What does this mean for investors?
Investors may need to adjust their expectations for interest rate movements and consider the implications for asset prices, particularly in fixed income and equities, based on the prolonged period of tighter monetary policy.
Could inflation still decline faster than expected?
Yes, it remains possible that inflation could decrease more rapidly if external factors change or supply chain issues resolve sooner than anticipated, but current projections suggest a longer persistence of inflation pressures.
