Goldman Sachs predicts the Federal Reserve will deliver its final rate hike of 2026 at the October 27 policy meeting, potentially drawing the current tightening cycle to a close. However, the bank emphasizes that a sustained decline in oil prices, which would help cool inflation, is the critical precondition for this "two-hikes-and-done" scenario to materialize, even as market consensus currently expects another increase this month. The firm forecasts Brent crude will drop to $85 per barrel by December.
In a latest research note, Goldman Sachs Chief Economist Jan Hatzius wrote: "In the modern history of the Federal Open Market Committee (FOMC), there are very few precedents for skipping a rate hike on the eve of an election. The most notable example is 2022, when the committee raised rates by 75 basis points just six days before the midterm elections. After October, with core personal consumption expenditures (PCE) inflation cooling faster than the committee anticipates, the federal funds rate is likely to hold steady. We still expect the Fed to begin cutting rates in late 2027, eventually bringing them down to our estimated neutral range of 3.25% to 3.5%."
At least for this week, Goldman Sachs' oil price projection is gaining early validation. Over the past several days, crude futures have experienced consecutive sharp sell-offs as concerns over geopolitical supply disruptions have eased somewhat. Brent crude has tumbled nearly 13% from its recent peak of $113 per barrel, breaking below the key psychological threshold of $100 and currently trading near $98.44.
The catalyst for this significant price drop was the partial restoration of operations on Saudi Arabia's East-West pipeline. Additionally, diplomatic discussions between the U.S. and Iran at the United Nations General Assembly have further weighed on oil prices. The geopolitical risk premium that had earlier driven crude to yearly highs is now gradually fading.
Ben Emons, founder of FedWatch Advisors, commented: "Two forces have suddenly converged, and market risk appetite is recovering. Meta's launch of a free AI agent, combined with signals from Iran's Revolutionary Guard suggesting the Strait of Hormuz could reopen to shipping within seven days—these two events are like jumper cables, injecting momentum into a previously sluggish market."
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