Goldman Sachs Revises Rate Cut Forecast Amid Middle East Conflict

Goldman Sachs has revised its Federal Reserve rate cut forecast, now expecting two 25-basis-point reductions in June and September 2026, down from its earlier projection of cuts beginning in March. The revision comes as the ongoing Middle East conflict drives energy prices higher, complicating the inflation outlook and forcing central banks globally to reassess their easing timelines.

The investment bank's economists, including Manuel Abecasis and David Mericle, have raised U.S. recession odds to 25% over the next 12 months, citing the economic fallout from the Iran conflict . Goldman now sees the fed funds rate ending 2026 at 3.00–3.25%, reflecting a more cautious stance as oil price volatility and supply chain disruptions weigh on the growth outlook. The Bank of England has faced similar pressure, with Goldman delaying its BoE rate-cut outlook for the second time this month.

For markets, the revised forecast signals a prolonged period of elevated interest rates that could pressure rate-sensitive sectors including real estate and growth equities. Investors will be watching upcoming inflation data and developments in the Strait of Hormuz closely, as any escalation could push Goldman's recession probability even higher. The interplay between geopolitical risk and monetary policy remains the dominant theme for fixed income and equity markets heading into Q2 2026.