Goldman Sachs: History Suggests Rate Cuts Despite Oil-Driven Hike Expectations

The number driving macro desks this week is 45. That is the percentage chance futures markets now assign to the Federal Reserve raising rates in 2026, a figure that has ballooned from just 12% since Operation Epic Fury pulled the U.S. into the Iran conflict in late February. Goldman Sachs Research, publishing its analysis through the firm's Briefings newsletter and official X account, says the crowd has it wrong in a significant way, and history is the evidence.

Goldman economist Manuel Abecasis laid out four reasons in an early-April note why rate hikes remain a tail risk rather than a credible base case, even as Brent crude trades above $115 a barrel. The most pointed is the historical record itself. Abecasis wrote that "our probability-weighted Fed forecast remains meaningfully more dovish than market pricing," and Goldman found no meaningful relationship between oil price shocks and tighter monetary policy in Fed officials' speeches, a pattern that stands in sharp contrast to the ECB, which has historically responded more aggressively to energy-driven inflation.

The 1990 Gulf War oil shock is Goldman's sharpest historical parallel and the stat most likely to reframe the debate. When Iraq's invasion of Kuwait pulled nearly four million barrels of daily supply from global markets, crude jumped from roughly $17 to $36 a barrel in months, and markets repriced yields sharply higher in anticipation of Fed tightening. Then-Fed Chair Alan Greenspan held the effective rate near 8.2% through September 1990 before turning the other direction entirely. By December 1993, the rate had been cut to 2.96%, a decline of more than 500 basis points following an oil shock that briefly had markets pricing hikes. The logic was identical to what Goldman is now arguing: energy costs dampen spending fast enough that they do the Fed's restrictive work on growth, making additional tightening both redundant and dangerous.

Goldman Chief U.S. Economist David Mericle confirmed the firm's current base case holds at two 25-basis-point cuts, now shifted to September and December from the original June-September timeline, targeting a terminal rate of 3.0% to 3.25%. The Iran shock delayed the schedule; it did not change the direction.

The asset-level implications are specific and actionable. The front end of the rate curve is where Goldman sees the clearest misread, with 45% hike odds the firm considers sharply overstated. If growth deteriorates as Goldman projects, the long end rallies as recession fears compress yields. Credit and consumer-facing assets face more immediate pressure: Goldman trimmed its 2026 discretionary cash-flow growth forecast for U.S. consumers to 4.2% from 5.1%, while economist Pierfrancesco Mei estimated in a March 26 note that the oil shock is removing approximately 10,000 jobs per month from U.S. payrolls, putting unemployment on a path to 4.6% by the third quarter.

For Goldman's rates and macro teams fielding client calls right now, the firm's own research offers a clear framing: the front-end hike pricing is the trade to fade, not to chase. The pattern Goldman has documented across every major oil spike since the 1973 embargo is that energy-driven financial tightening arrives fast, stalls growth before the Fed has to act, and ends the year with cuts that markets spent months refusing to believe were coming.