Goldman delays first Fed cut to December 2026 on inflation

Wall Street's consensus on Fed rate cuts has shifted sharply later. Goldman Sachs, one of the market's most influential voices on monetary policy, has moved its first Fed cut forecast from June 2026 to December 2026, citing elevated energy prices keeping inflationThe rate at which prices rise across an economy. high and a 10-week Middle East conflict driving oil up. Bank of America has followed suit, pushing its forecast back as well. This marks the latest in a growing cohort of major banks, including strategists at Morgan Stanley and others, that are abandoning the 'dovish pivot' narrative that dominated late 2025 and early 2026.

The trigger for the shift is straightforward: inflationThe rate at which prices rise across an economy. expectations have re-anchored upward on the oil shock. While core inflation has been benign, headline inflation is being re-energized by the Strait of Hormuz closure and Trump administration uncertainty. Additionally, recent employment data has been stronger than expected, removing the 'recession in the making' scenario that had underpinned near-term cut hopes. The Conference Board Employment Trends Index rose to 105.77 in April from a downwardly revised 105.52 in March, signalling job stability and hours resilience.

The implications span asset classes. Longer-dated US Treasury yields have risen alongside the inflationThe rate at which prices rise across an economy. repricing; the 10-year auction in Japan saw stronger-than-average demand, suggesting global investors are rotating away from risk on expectations of prolonged US rate stability. Equity valuations that priced in near-term cuts are being re-examined. Tech and growth stocks, which benefit from lower discount rates, face headwinds if cuts are delayed or skipped entirely. Meanwhile, financials and dividend payers become relatively more attractive, and the dollar strengthens on expectations of persistent Fed restrictiveness. Emerging markets with hard-currency debt face margin pressure if US real rates remain elevated.

The debate centers on whether the oil shock is truly persistent or transitory. Markets remain in wait-and-see mode: central banks globally (BOE, ECB, Fed) are on hold, and inflationThe rate at which prices rise across an economy. expectations remain 'anchored for now,' per Aberdeen's Sree Kochugovindan. But if Hormuz remains shut through mid-summer, the risk that inflation re-accelerates and forces the Fed to stay higher for longer becomes material. Conversely, if Trump-Xi negotiations lead to a ceasefire or diplomatic resolution by June, the inflation shock reverses and Goldman's December cut scenario becomes too late.