Wall Street delays Fed cut forecasts on sticky inflation

Goldman Sachs, one of Wall Street's most influential forecasters, pushed its forecast for the first Fed rate cut from an earlier timeline to December 2026, then March 2027, marking a significant hawkish pivot. The bank cited sustained energy prices driven by the US-Iran conflict and the effective closure of the Strait of Hormuz as the primary reason inflationThe rate at which prices rise across an economy. remains sticky. Bank of America followed suit, joining a growing chorus of strategists now expecting the Fed to hold rates steady for much longer than markets had priced in months ago.

The energy shock is real: oil prices have surged as Middle East tensions escalated, with Trump rejecting Iran's peace proposals and casting doubt on any near-term ceasefire. Norden, a major commodity shipping firm, is now planning for the Strait of Hormuz to remain effectively closed for the rest of the year. Aramco estimates a 100-million-barrel-per-week loss in global oil supply while the strait remains shut. This supply squeeze is rippling through inflationThe rate at which prices rise across an economy. expectations and changing the inflation calculus for central banks globally; China's PBOC warned of imported inflation risks from higher oil and commodity prices.

For equities and fixed income, this narrative matters: a delayed Fed cut cycle keeps US real rates elevated longer, which pressures durationBond price sensitivity to interest rate changes.-heavy sectors and favors high-dividend stocks and cash. Energy and defense beneficiaries of the geopolitical risk premium rally, but rate-sensitive tech and growth names face headwinds. The bond market has already repriced; yields have risen as traders absorbed the idea that cuts are further away. Mortgage rates stay elevated, pressuring real estate and consumer discretionary sectors.

Sceptics argue that if oil prices retreat quickly or supply normalizes, inflationThe rate at which prices rise across an economy. could ease faster than current forecasts suggest, forcing a rapid Fed pivot. Additionally, some economists contend that energy shocks are transitory and don't warrant permanently higher rate expectations. But for now, the consensus among major banks has shifted decisively toward a prolonged hold.