Wall Street pushes back Fed rate-cut forecasts

Major Wall Street banks are pulling back expectations for interest-rate cuts as inflationThe rate at which prices rise across an economy. pressures mount from geopolitical tensions in the Middle East. Goldman Sachs pushed its first Fed cut forecast from June to December 2026 or March 2027, explicitly citing elevated energy prices fueled by the nearly year-long US-Iran conflict and the effective closure of the Strait of Hormuz as a supply bottleneck. Bank of America joined this camp, arguing that both labor market strength and headline inflation remain too elevated to justify near-term easing. This marks a significant pivot from the dovish tone that prevailed in early 2026, when rate-cut optimism was running high.

The energy crisis is the linchpin. Norden, a major commodity shipper, is planning for the Strait of Hormuz to remain effectively shut for the rest of the year; global oil markets are losing 100 million barrels weekly while the waterway is closed. Aramco estimates roughly 100 million barrels of oil supply loss per week. Oil prices have surged in response, pushing gasoline to USD 4.54 per gallon in the US. China's central bank explicitly warned of imported inflationThe rate at which prices rise across an economy. risks from higher oil and commodity prices. Meanwhile, the Trump administration has moved to release emergency reserves; the Strategic Petroleum Reserve awarded 53.3 million barrels to traders and refiners, though this offers only temporary relief.

The implications ripple across assets. Rate-cut delays are bearish for growth equities, favorable for defensive sectors, and supportive of the USD. Banks benefit from a higher-for-longer rate regime, but cyclicals and real estate face headwinds from persistent tightness. Europe is shrugging off high oil prices so far, but emerging markets like India are taking emergency steps to curb non-essential imports and shore up forex reserves. The narrative inverts the risk-off sentiment that gripped markets earlier; now inflationThe rate at which prices rise across an economy., not growth, dominates the policy debate.