May 11 - Goldman Sachs has revised its timeline for U.S. Federal Reserve rate reductions, delaying its prior projection of cuts this year to a later schedule of December 2026 and March 2027. The brokerage attributes the shift to higher energy prices, which it says are likely to keep inflation elevated and slow progress back to the Fed's 2% target.
In a note dated May 8, Goldman Sachs wrote that energy cost passthrough into consumer prices will probably keep year-over-year core PCE inflation closer to 3% than 2% through the year. The firm said that the Federal Open Market Committee (FOMC) would likely need to see lower monthly inflation prints after the oil shock fades, together with further weakening in the labour market, before it would consider cutting rates within the current year.
Goldman Sachs had previously expected rate reductions in September and December of this year, but the revised view now splits the first easing into December 2026 and a follow-up move in March 2027. The brokerage added that if the labour market does not soften sufficiently this year, it would expect the FOMC to deliver two final cuts in 2027, coinciding with its projection that core inflation will return to the 2% goal that year.
The update from Goldman comes as a broader group of global brokerages have trimmed their expectations for U.S. rate cuts in 2026. Firms are divided between forecasting some easing and forecasting no cuts at all, reflecting heightened caution among policymakers in light of recent energy price moves.
The ongoing Middle East war, now about 10 weeks old, has contributed to an increase in energy prices, a development markets and policymakers see as a key upside risk to inflation. U.S. inflation remains well above the Fed's 2% objective.
The Federal Reserve kept interest rates unchanged at its April 29 meeting. The decision was reached in an 8-4 vote - the narrowest margin on the policy committee since 1992. Traders, as measured by the CME FedWatch tool, currently expect the central bank to maintain the federal funds rate in a 3.50% to 3.75% range through the end of the year.
Market implications
The combination of higher energy costs and a still-tight labour market is delaying the path to easier monetary policy, in Goldman Sachs' view. That reassessment is consistent with other brokerages' more cautious forecasts for 2026 and underpins current market pricing for steady rates through year-end.