Two large Wall Street banks have shifted their forecasts for Federal Reserve rate cuts, delaying the timing of policy easing as persistent inflationary pressure and a resilient labor market weigh on the near-term outlook.
Goldman Sachs adjusted its projection by moving its final two forecasted rate cuts back by one quarter. The bank now sees the Fed reducing rates in December 2026 and again in March 2027. In explaining the change, Goldman analyst David Mericle pointed to the impact of higher energy costs on inflation measures, writing: "With energy cost passthrough likely to keep year-over-year core PCE inflation closer to 3% than 2% all year, we think that a combination of lower monthly inflation prints after the oil shock fades and further labor market softening will likely be needed for the FOMC to cut this year."
Goldman left its forecast for the policy terminal rate unchanged at 3.0%-3.25%. The bank also noted a material possibility that, if the economy remains sufficiently strong, the Fed could determine that additional cuts are not necessary.
Bank of America took a more bearish view on the timing of easing, removing its two expected 2026 rate cuts entirely and rescheduling them for the July-September 2027 period. Analyst Aditya Bhave pointed to what he characterized as a hawkish shift in Federal Reserve commentary, noting that even officials typically seen as dovish - such as Daly and Waller - have advocated pausing to assess incoming data.
Bhave emphasized the durability of inflation, writing: "Inflation is stuck well above target," and highlighted that core personal consumption expenditures (PCE) inflation rose to 3.2% year-on-year in March, with additional passthrough from the oil shock still potentially working its way into price measures.
Bank of America also called attention to tail risks on the rate outlook, assigning a roughly 15%-20% probability to an increase in rates. The bank said such a move would likely be described as a reversal of cuts implemented last year and could occur if unemployment fell to or below 4% while core PCE approached 3.5%.
These revisions by two influential Wall Street institutions underline how energy-driven inflation dynamics and the labor market are central to the Fed's decision calculus, and how those forces can push back anticipated policy easing despite earlier expectations for rate reductions.