Middle East Conflict Escalation Intensifies Inflation Risk! Goldman Sachs Delays Fed Rate Cut Expectations, Projects Next Action in September

Cailian Press, March 12 (Editor: Bian Chun) Goldman Sachs has delayed its expectations for a Federal Reserve rate cut, now anticipating the Fed will cut rates by 25 basis points in September and December, citing rising inflation risks triggered by Middle East conflicts.

The bank previously expected a new rate-cut cycle to begin in June, followed by another cut in September.

Due to escalating US-Iran tensions raising concerns over oil supply shocks, increased inflation, and economic outlook uncertainties, global financial markets have remained under pressure recently.

“By September, we expect further weakening in the labor market and progress in core inflation to jointly justify a rate cut,” Goldman Sachs said in a report on Wednesday, adding that if the labor market weakens earlier and more significantly than expected, an earlier rate cut remains possible.

Goldman strategists noted that the weak employment report in February continues to fuel concerns about further cooling in the labor market, and slowing GDP growth along with rising geopolitical risks could increase the likelihood of an early rate cut.

The bank also stated that if the labor market weakens enough to support an early rate cut, concerns about rising oil prices pushing up inflation or inflation expectations are unlikely to prevent the Fed from adopting an easing stance sooner.

Another major Wall Street investment bank, Morgan Stanley, also said on Wednesday that the Fed could restart rate cuts as early as June. However, the bank also noted that the oil price shock caused by the Iran conflict could delay this process.

The bank’s economists currently maintain their previous forecast, expecting the Fed to cut rates by 25 basis points in June and September this year—despite rising energy prices potentially intensifying inflation pressures. They also believe that the Fed might delay its first rate cut until September or even December, which could push the next cut into 2027.

Currently, traders are pricing in about a 41% chance of a 25 basis point rate cut by the Fed in September.

At the end of January this year, during the first rate decision of 2026, the Fed kept the benchmark interest rate unchanged at 3.50%-3.75%, pausing a series of three consecutive rate cuts since September last year.

The market generally expects the Fed to keep the benchmark rate steady at its upcoming policy meeting on March 17-18.