Goldman and BofA delay first Fed rate cut to late 2026

Goldman Sachs and Bank of America joined a growing chorus of Wall Street strategists this week in delaying their first-cut forecasts, both citing energy prices and labor strength as reasons to hold steady. The move reflects a fundamental reassessment of the inflationThe rate at which prices rise across an economy. backdrop; rather than the brief shock many had anticipated, geopolitical pressures in the Middle East are proving more durable than expected. Oil prices have surged on the back of the US-Iran standoff and the effective closure of the Strait of Hormuz, creating persistent upside risk to headline inflation that the Fed cannot ignore.

Goldman now expects the first cut in December 2026, while BofA has pushed its call to March 2027. Both banks cite the same culprit: the Iran conflict has sent crude prices sharply higher and kept them there, feeding through to broader inflationThe rate at which prices rise across an economy. expectations. The jobs market, meanwhile, remains resilient; Conference Board employment trends ticked up in April, suggesting wage pressure is unlikely to ease soon. This combination leaves the Fed in no rush to ease policy, even as parts of the market had begun to price in relief as early as June.

For equities, the shift has mixed implications. Tech and growth stocks face renewed headwinds from a higher for longer rate backdrop, yet banks and financials see margin expansion. The energy sector, buoyed by crude strength, is posting exceptional returns. Conversely, commercial real estate and high-leverage consumer sectors face pressure as refinancing costs remain elevated. Macro sentiment is swinging from "soft landing" to "muddle through," with bond yields climbing on the longer end even as short-term rate volatility subsides.

Skeptics point out that rate-cut expectations have whipsawed repeatedly over the past eighteen months, and energy shocks have historically proven transitory. If the Hormuz impasse resolves quickly or geopolitical tensions ease, crude could fall sharply and take inflationThe rate at which prices rise across an economy. expectations with it, forcing a rapid pivot back to easing. The consensus assumes a prolonged closure; any breakthrough could invalidate the entire thesis within weeks.