Goldman delays Fed rate-cut call as Middle East war lifts inflation risks

Bank had previously projected the rate cuts to begin in June. Read more at straitstimes.com.

BENGALARU - Goldman Sachs has pushed back its forecast for the US Federal Reserve’s rate cuts, and now expects quarter-point reductions in September and December, citing rising inflation risks linked to the Middle East conflict.

The US banking giant had previously projected the easing cycle to begin in June, followed by another reduction in September.

Global financial markets have been under pressure as the US-Iran war stoked fears of an oil supply shock, elevated inflation and an uncertain economic outlook.

“By September, we expect both some further labour market softening and progress on underlying inflation to contribute to the case for a cut,” Goldman said in a note on March 11, adding that earlier cuts remain possible if the labour market weakens sooner and more substantially than expected.

A weak February jobs report has kept alive concerns over further cooling in the labour market, and slower GDP growth along with rising geopolitical risks could increase the likelihood of earlier rate cuts, Goldman strategists said.

The bank added that if the labour market weakens enough to warrant earlier rate cuts, concerns about higher oil prices feeding into inflation or inflation expectations are unlikely to prevent the Fed from easing sooner.