Goldman Sachs has officially changed its prediction for when the Federal Reserve will start cutting interest rates. While many experts previously hoped for a cut in June, the bank now believes the first reduction won’t happen until September 2026. This delay is mostly because of new risks from the war between the U.S. and Iran, which has caused oil prices to spike and pushed inflation higher than expected. By pushing the timeline back, Goldman signals that the “higher-for-longer” interest rate environment is likely to stay with us through the summer.
The Conflict and the Oil Shock
The primary reason for this change is the ongoing geopolitical crisis in the Middle East. War often leads to uncertainty, but this specific conflict has directly hit global energy markets. Oil prices have surged as traders worry about supply blocks in the Strait of Hormuz. Goldman Sachs strategists now expect Brent crude oil to average around $98 per barrel in March and April.
When oil prices go up, almost everything else becomes more expensive. This is because it costs more to transport goods to stores and more to run factories. Goldman estimates that for every 10% increase in oil prices, “headline” inflation—which includes food and energy—rises by about 0.2 percentage points. Because of this “oil shock,” the bank has raised its inflation forecast for the end of 2026 to 2.9%, which is well above the Federal Reserve’s 2% goal.
A New Timeline for Rates
Under the new plan, Goldman Sachs expects two small interest rate cuts this year. The first 0.25% cut is predicted for September, followed by a second 0.25% cut in December. This would bring the final interest rate to a range of 3% to 3.25%.
“By September, we expect both some further labor market softening and progress on underlying inflation to contribute to the case for a cut,” Goldman economists explained in a recent research note. Essentially, they believe the Fed needs to see more proof that the economy is cooling down before they feel safe lowering rates. If the Fed cuts too early while oil prices are high, they risk letting inflation spiral out of control again.
What the Experts Are Saying
Jan Hatzius, the chief economist at Goldman Sachs, has been very clear about why the Fed isn’t in a rush. During a recent interview, he mentioned that the U.S. economy is actually doing quite well despite the high rates. He noted that the economy is not “crying out for interest rate cuts” at this point in time.
Hatzius believes that as long as people are still spending money and the job market stays stable, the Federal Reserve has the luxury of waiting. “The economy is in a pretty solid growth environment,” he added. This suggests that the Fed’s main priority is fighting inflation, rather than trying to save a failing economy.
However, not everyone agrees on how many cuts we will see. Some traders in the “fed funds futures” market are even more pessimistic. They are currently pricing in only a 41% chance of a September cut, with many betting that we might only see one single cut in December 2026.
The Economic Data at a Glance
To see how the outlook has shifted, it helps to look at the specific numbers Goldman is now using for its 2026 forecasts.
| Economic Indicator | New 2026 Forecast | Change from Previous |
| First Rate Cut | September 2026 | Delayed from June |
| Headline PCE Inflation | 2.9% | Up 0.8% |
| Core PCE Inflation | 2.4% | Up 0.2% |
| GDP Growth | 2.2% | Down 0.3% |
| Brent Oil (March/April) | $98 per barrel | Up 40% from 2025 |
Impact on Investors and Markets
This delay has big implications for anyone with a retirement account or a mortgage. When interest rates stay high, borrowing money for a house or a car remains expensive. For investors, “fixed income” assets like bonds become more attractive because they offer a higher “yield” or return for a longer period.
“Duration becomes attractive,” noted one investment strategist in a recent market outlook. This means that locking in today’s high interest rates for several years could be a smart move for people looking for a steady income. On the other hand, the stock market often feels pressure when rates stay high, as it becomes more expensive for companies to borrow money to grow their businesses.
The “equity” markets (stocks) are particularly sensitive to these updates. If inflation stays high because of the war, tech companies and other high-growth businesses might see their stock prices stay flat or even drop as investors move their money into “safer” bonds.
The Role of the Labor Market
There is one thing that could change this whole plan: the job market. Goldman Sachs mentioned that if the number of people losing their jobs increases significantly, the Fed might cut rates sooner than September.
So far, the U.S. labor market has been resilient, but there are signs of “softening.” For example, the February jobs report was weaker than expected. If companies stop hiring or start laying off workers in large numbers, the Fed would likely pivot to protecting jobs, even if inflation is still slightly high. For now, however, the “wait and see” approach is the name of the game.
The coming months will be pivotal. Investors will be watching every new inflation report and every update from the Middle East conflict. If oil prices stabilize or the war ends quickly, the Fed might be able to return to its original plan. But for now, the message from Goldman Sachs is clear: prepare for a longer wait before the cost of borrowing starts to go down.
