The ongoing war between the US and Iran, lasting for weeks, has created increasing uncertainty and rising oil prices, raising inflation risks. At this point, there is talk that the Fed may postpone interest rate cuts until the end of the year, or even raise rates if deemed necessary.
However, Goldman Sachs predicted that the Fed is unlikely to raise interest rates this year.
Goldman Sachs analysts stated in a report that despite the rapid change in market pricing for the US federal funds rate following the start of the war with Iran, the probability of an interest rate hike this year remains low.
Analysts noted that the current supply shock is relatively small and more limited compared to past inflationary shocks, and also stated that the increase in oil prices is not as significant as it was in the 1970s.
Analysts argued that the Fed’s current monetary policy starting point reduces the likelihood of interest rate hikes. They also emphasized that the Fed does not typically implement tightening policies based solely on oil price shocks.
According to CME FedWatch, the probability of the Fed keeping interest rates unchanged in April is priced at 99.5%, while the probability of a 25 basis point increase is priced at 0.5%. The probability of an interest rate cut is not priced in.
By June, the probability of interest rates remaining unchanged was priced at 90.1%, while the probability of a 25 basis point cut was 9.4%, and the probability of a 25 basis point increase was 0.5%.
*This is not investment advice.
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