Wall Street Pushes Fed Rate Cut Forecasts Into 2027

Major investment banks are retreating from their earlier rate-cut timelines as oil supply shocks and inflationThe rate at which prices rise across an economy. concerns dominate the macro conversation. Goldman Sachs pushed its initial cut forecast from June to December 2026, with some scenarios extending into March 2027. Bank of America made similar moves, joining a growing Wall Street cohort that sees the Federal Reserve on hold longer than previously expected. The trigger is straightforward: the Strait of Hormuz closure, driven by the US-Iran standoff, has created the largest oil supply shock since World War II, with markets losing approximately 100 million barrels per week during the shutdown.

Oil prices have surged and broader inflationThe rate at which prices rise across an economy. expectations have crept higher, complicating the Fed's ability to cut rates on schedule. Goldman specifically cited elevated energy prices keeping inflation "high." Meanwhile, India is considering emergency measures to curb non-essential imports and hike fuel prices to preserve foreign-exchange reserves, a sign that the commodity shock is reverberating across emerging markets. Morgan Stanley's global head of macro strategy flagged expectations for a "spicier" inflation report this week, adding to the headwinds.

The delay has immediate cross-asset implications. Rate-sensitive sectors like real estate and consumer discretionary face headwinds; financial stocks benefit from a higher-for-longer rate regime; and the US dollar stays supported. Emerging markets face dual pressure: commodity import inflationThe rate at which prices rise across an economy. plus capital outflows if US rates stay elevated longer. China investors, already digesting trade tension ahead of the Trump-Xi summit, are now pricing in a slower global growth trajectory and tighter financial conditions.

Critical to monitoring is whether the Iran ceasefire holds. Trump rejected Iran's latest peace offer on Monday, stating the agreement was on "massive life support." If the Strait of Hormuz reopens quickly, the inflationThe rate at which prices rise across an economy. narrative could reverse and force banks to bring cut forecasts back forward. The market is watching this week's CPI data and any diplomatic progress as key turning points.