Goldman Sachs Revises Fed Rate Cut Forecast Amid Middle East Conflict

Goldman Sachs has revised its forecasts for U.S. Federal Reserve rate cuts, now projecting reductions in September and December due to escalating inflation risks linked to the conflict in the Middle East.

Initially, Goldman expected the easing cycle to commence in June. However, recent geopolitical tensions, particularly the U.S.-Iran conflict, have sparked fears of an oil supply shock and heightened inflation, contributing to an uncertain economic forecast.

The firm noted that progress in labor market conditions and inflation could support a rate reduction by September. Nonetheless, if the labor market weakens significantly sooner, Goldman suggests the Federal Reserve might consider earlier cuts. Current market trading indicates a 41% likelihood of a 25 basis point rate cut in September.