Key Insights:
- Goldman Sachs sees two Fed rate cuts later this year.
- Cuts may be delayed to September and December.
- Inflation risks keep rate hike fears alive.
As the US-Iran war continues to escalate without any indications of a resolution, the big question remaining is ‘Will the Federal Reserve cut interest rates this year?’. While there’s still uncertainty surrounding the matter, a Goldman Sachs analyst projects two Fed rate cuts in 2026.
However, the analyst states that these Fed rate cuts may be delayed until September and December. But the statement has sparked widespread optimism amid rising speculations of a Fed rate hike.
Goldman Sachs Says Fed Rate Cuts Are Possible
According to today’s CNBC report, Goldman Sachs analyst David Mericle is optimistic about two potential Fed rate cuts this year. But he believes that the Fed is currently taking a cautious stance due to the ongoing US-Iran war. This may cause possible delays in the central bank’s decision to reduce interest rates.
Mericle expects the Federal Reserve to delay any rate cuts until later in the year. September and December emerge as the most likely timeline, according to his projections. The delay reflects ongoing concerns around stubborn inflation and external risks like rising oil prices.
“Yes, we expect cuts in September and December,” stated the economist. He added that even if inflation comes down and unemployment rises slightly to around 4.6%, there could be some disagreements among policymakers.
However, he added that these trends support the case for the Fed rate cuts. In that case, interest rates will gradually move closer to a more neutral level of around 3–3.25%. Thus, the expectation of two rate cuts has sparked some optimism in the markets.
Investors had been increasingly worried about the possibility of further rate hikes, but Goldman Sachs’ view suggests that easing is still on the table.
Is a Fed Rate Hike Looming?
The projection from the Goldman Sachs analyst has sparked intense attention as it comes as a ray of hope amid growing speculations of a potential Fed rate hike.
Many experts have projected that the central bank may soon increase the rates following its last decision to hold rates stable at 3.50%-3.75%.
For instance, Chicago Fed President Austan Goolsbee warned that the central bank may still raise rates if inflation worsens. He stated that the Fed could consider raising rates depending on how the situation in the Middle East unfolds.
If the war leads to higher inflation, the central bank may have no choice but to act. He also noted that, right now, inflation is a bigger concern than the job market. On the other hand, he also added, “We could be back to the environment with multiple rate cuts for the year if inflation behaves.”
Similarly, the Bank of America also hinted at the Federal Reserve’s potential rate hikes. The bank believes that the Fed is likely to increase the rate as the oil price rises amid the Middle East tensions. These issues put pressure not only on the Fed but also on global markets, including crypto.
The bank highlighted a few key factors that could lead to a rate hike. These include a strong labour market, Jerome Powell continuing as Fed Chair, and oil prices staying high due to the ongoing conflict. According to Bank of America, the risk of a hike increases further if oil prices remain above $80.