Fed rate cuts pushed back as inflation stays sticky

Goldman Sachs and Bank of America joined a growing cohort of Wall Street banks pushing back their rate-cut forecasts this past week, now targeting December 2026 or March 2027 rather than earlier in the year. The primary catalyst is elevated energy prices stemming from the Iran conflict and the effective closure of the Strait of Hormuz, which has disrupted a critical global oil chokepoint. The closure is causing a supply shock that traders are assessing as the largest since World War II, with some estimates suggesting 100 million barrels per week are being lost. This supply disruption is keeping oil prices elevated, which in turn is pressuring inflationThe rate at which prices rise across an economy. expectations and giving central banks less room to ease monetary policy.

The macro backdrop remains surprisingly resilient despite geopolitical headwinds. Wall Street strategists are raising targets on the S&P 500 for 2026, with some forecasters like Ed Yardeni expressing confidence that the benchmark can breach 8,000 points by year-end. Meanwhile, the Russell 2000 is hitting all-time highs, and the ISM manufacturing index continues above 52, suggesting underlying economic strength even as oil absorbs headline attention. Energy prices are also dragging on corporate margins in unexpected ways: Petrobras missed profit estimates despite the war-driven oil rally, having held domestic gasoline prices stable while global crude surged. Fertilizer prices spiked on war concerns, but producer Mosaic Co. failed to capture a windfall.

For rate-sensitive sectors, the extended timeline for Fed cuts is reshaping positioning. Real estate and dividend-yielding equities may face headwinds if borrowing costs stay elevated longer. Conversely, energy and defense names benefit from the risk premium embedded in commodity prices and geopolitical instability. Central banks globally are now in wait-and-see mode; the Bank of England, ECB, and Fed are all holding steady while monitoring inflationThe rate at which prices rise across an economy. dynamics. The narrative shift from "rate cuts are coming soon" to "cuts are further out and conditional" is meaningful for asset allocation, particularly for those who had front-run a dovish Fed pivot.