Goldman Sachs doesn’t think the Federal Reserve will give the markets what they want.
According to TheFly, the bank expects the next two Fed interest rate cuts to come in December 2026 and March 2027, pushing its previous timeline back by one quarter.
The rationale is obvious: inflation continues to run hot, and Goldman expects PCE inflation to hover near 3% through 2026, well above the Fed’s 2% goal.
For perspective, in the latest FOMC meeting on April 28–29, the Fed kept policy rates unchanged at 3.50%-3.75%.
On inflation, Fed Chair Jerome Powell said that,
“Inflation has moved up and is elevated, in part reflecting the recent increase in global energy prices”.
For context, since the Iran War escalated in late February, energy prices have risen sharply, with Brent Crude jumping from the low-$70s per barrel to nearly $100 per barrel in recent trading (a 35% to 45%).
Additionally, JPMorgan CEO Jamie Dimon issued a stark warning about inflation during an April 28, 2026, speech at the Norges Bank Investment Management’s Investment Conference in Oslo.
“My view is that there are a lot of inflationary things out there, including the Iran War, the re-militarization of the world, the infrastructure needs of the world, and our deficits.”
For investors, that scenario is troubling because they may have to wait longer for risk assets to get a meaningful boost and for the rally to deepen.
Consequently, the Fed needs a lot more evidence to justify a policy reset.
Daniel Heuer/Bloomberg via Getty Images
Goldman sees inflation delaying cuts
Goldman Sachs ’ updated forecast centers on stickier-than-expected inflation, which is still running close to 3% compared to the Fed’s 2% target.
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So far, according to the bank, the Fed hasn’t gotten enough evidence that price pressures are cooling.
Goldman’s economists say that the evidence hasn’t arrived as of yet, especially with regard to energy costs feeding into broader prices.
That’s exactly why the firm expects the next couple of cuts to land a quarter later, arguing the Fed might need more data to justify easing.
On top of that, Goldman’s unchanged terminal rate forecast of around 3% to 3.25% is also important, which underscores a slower path to lower rates that could pressure stocks, bonds, mortgages, and corporate borrowing expenses.
Inflation trend worries the Fed
The Fed had hardly any reason to cut interest rates after the latest PCE inflation report.
PCE price index crept up 0.7% in March, rising from around 0.4% in February and 0.3% in January. On a year-over-year basis, the headline PCE figure has actually jumped 3.5%, moving sharply away from the 2% target.
On top of that, core inflation (stripping out food and energy) offered limited comfort.
Core PCE jumped 0.3% month-over-month in March, a better result from 0.4% in both January and February. However, on an annualized basis, core PCE was up 3.2% from a year earlier, higher than in the past couple of months.
Simultaneously, we’re seeing that consumer demand still remains mostly strong.
Personal spending rose 0.9% in March, while real PCE increased by 0.2%, indicating that consumers are still absorbing the impact of higher prices.
That mix is uncomfortable for the Fed, as in a sticky inflation scenario, spending levels remain resilient, making the case for near-term cuts much harder.
Wall Street gets cautious on rate cuts
Goldman isn’t alone in stepping back on rate-cut timelines.
Multiple analysts at major banks and otherwise are rethinking how swiftly the Fed can ease rates.
Though cuts are still possible, it’s getting harder to justify them while inflation remains above target.
- Barclays moved to no cuts in 2026. The bank dropped its previous call for a 25-basis-point September cut, expecting the first Fed cut in March 2027, due to higher energy prices linked to the Iran war.
- JPMorgan is even more cautious. J.P. Morgan Global Research expects the Fed to hold rates steady throughout 2026, with the next move actually being a 25-basis-point hike.
- Markets have repriced aggressively. According to Reuters, traders were pricing in a couple of 25-basis-point cuts at the beginning of the year, but now expect virtually no moves in 2026. Moreover, reports suggest that multiple policymakers are now in two minds about the Fed’s next move, with inflation roughly a percentage point above target.
- The oil shock is a common problem. Elevated fuel and transportation costs will keep inflation sticky while slowing growth, leaving the Fed with hardly any room to rush into cuts.
Related: RBC revamps S&P 500 target for the rest of 2026
