Wall Street Giants Morgan Stanley and Goldman Sachs Revise FED Interest Rate Forecasts! Worst-Case Scenario Revealed!

The war between the US and Iran increased uncertainty and oil prices, which indirectly heightened inflation concerns.

Analysts are concerned that inflation, which the US Federal Reserve (FED) has long been trying to bring down to its 2 percent target, may come under renewed upward pressure as a result of this increase in energy prices.

While there is talk at this point that the Fed might even raise interest rates in the face of inflation risk, there are differing opinions and expectations regarding the Fed’s interest rate decisions.

According to Morgan Stanley economists, the Fed may resume interest rate cuts in June.

However, the increase in oil prices caused by the US-Iran war and the accompanying inflation fears may cause interest rate cuts to be postponed until the end of the year.

Morgan Stanley’s chief economist, Michael Gapen, and his team stated in a note that despite rising energy costs putting upward pressure on inflation, they maintain their forecast of a 25 basis point rate cut by the Fed in June and September. However, they also noted the possibility that the Fed could postpone the first cut to September or December, and the second cut to 2027.

“If the Fed eases prices sooner than expected by ignoring oil-related price increases, that would be advantageous. However, in the face of strong inflation and low unemployment, rate cuts may be delayed.”

These two factors are causing the Fed to hesitate in its interest rate cuts. The timeline for rate cuts may change, and the Fed could postpone rate cuts until the end of 2026.

Goldman Sachs expects the Fed to cut interest rates by 25 basis points in September and December of 2026. This means the bank has revised its previous forecast, which predicted rate cuts in June and September.

*This is not investment advice.