Fears of Iran-driven inflation… Goldman Sachs: “Fed to delay rate cuts to September”

Global investment bank (IB) Goldman Sachs has pushed back its forecast for when the U.S. Federal Reserve (Fed) will begin cutting interest rates, delaying it from June to September.

According to Reuters on the 12th (local time), Goldman Sachs said in a report the previous day (11th) that it revised the timing of the Fed’s first rate cut from June to September. Goldman Sachs expects the Fed to lower the policy rate by 0.25 percentage points each in September and December this year.

Reuters reported that “global financial markets are under pressure as concerns grow over an oil-supply shock from a war between the United States and Iran, elevated inflation and economic uncertainty.”

Goldman Sachs’ revision reflects concerns over Iran-driven inflation. On the day, it raised its forecast for Brent crude prices in the fourth quarter from $66 per barrel to $71. Its fourth-quarter forecast for West Texas Intermediate (WTI) was also lifted from $62 to $67. Goldman Sachs expects Brent prices to trend lower after averaging $98 per barrel in March and April this year.

Goldman Sachs also said the timing of rate cuts could be brought forward if the labor market cools faster than expected. Goldman Sachs said, “Further easing in the labor market and progress in underlying inflation by September this year would provide grounds to justify rate cuts,” adding, “If the labor market weakens faster and by a larger margin than expected, the timing of rate cuts could be moved up.” It added that “a slowdown in gross domestic product (GDP) growth and an expansion of geopolitical risks could also be factors that increase the likelihood of earlier rate cuts.”