PCE inflation 2 points above target and surging oil prices push Goldman to delay rate cuts to late 2027.
Goldman Sachs Asset Management now assigns a near 50% probability to a Federal Reserve rate hike in July, citing persistent inflation and a hawkish tone from new Fed Chair Kevin Warsh. Core PCE remains nearly 2 percentage points above the 2% target, while oil prices surging from $60 to $102 per barrel have driven energy inflation to 18%, complicating disinflation efforts.
Markets had anticipated a dovish transition under Warsh, but his debut press conference was interpreted as a firm commitment to the 2% inflation goal. Goldman adjusted its rate cut expectations to late 2027, making the next PCE release a critical factor for July’s policy decision. The front end of the yield curve has steepened in response to the shift in Fed messaging.
Lindsay Rosner, head of multi-sector fixed income at Goldman, described Warsh’s remarks as a “regime change,” emphasizing the Fed’s prioritization of inflation control over market expectations. The new framework divides policy into a near-term inflation task force phase and a longer-term operational reset.