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Goldman Sachs: One more rate hike in 2026 if oil prices keep falling
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Goldman Sachs forecasts that the Federal Reserve will implement one more interest rate hike at its October 27, 2026 meeting, after which the current tightening cycle may conclude. However, this prediction depends on a sustained decline in oil prices that cools inflation. Goldman Sachs chief economist Jan Hatzius stated that there is little precedent for the Fed skipping meetings before elections, noting the 75 basis point hike six days before the 2022 midterms. The firm expects Brent crude oil to drop to $85 per barrel by December, a view supported by recent market moves. Crude oil futures have fallen sharply over the past week as geopolitical supply fears eased, with Brent crude plummeting nearly 13% from its recent peak of $113 per barrel to around $98.44. The pullback was triggered by Saudi Arabia's partial restart of its East-West Pipeline and diplomatic dialogue between the US and Iran at the United Nations General Assembly. Beyond October, Goldman Sachs sees rate cuts starting in late 2027 to a neutral rate of 3.25-3.5%.
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By: Brian Sozzi, Executive Editor Source: Yahoo Finance
Goldman Sachs anticipates one more interest rate hike in 2026 at the Federal Reserve's October 27 meeting, after which the Fed could conclude its current tightening cycle.
However, the investment bank emphasized that a sustained pullback in oil prices—sufficient to cool inflation—is critical to this "two-and-done" approach to rate hikes. The forecast comes ahead of what many market participants expect to be a hawkish Fed meeting this month.
Goldman Sachs projects Brent crude oil will decline to $85 per barrel by December.
"There is little precedent in modern FOMC history for skipping meetings before elections; most strikingly, the committee hiked by 75bp six days before the 2022 midterms," Goldman Sachs Chief Economist Jan Hatzius wrote in a note. "Beyond October, we see a stable funds rate as core PCE inflation comes down faster than the committee projects, and we still expect rate cuts to our neutral rate estimate of 3.25-3.5% starting in late 2027."
Related: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
Oil Price Outlook
The call on oil appears accurate, at least for this week.
Crude oil futures have experienced a sharp, multiday sell-off over the past week as lingering geopolitical supply fears have eased slightly.
- Brent crude has fallen nearly 13% from its recent peak of $113 per barrel.
- It has broken back below the key $100 psychological barrier, trading around $98.44.
Key Drivers of the Pullback
- Saudi Arabia's partial restart of its East-West Pipeline triggered the dramatic decline.
- Diplomatic dialogue between the US and Iran at the United Nations General Assembly added further downside pressure.
- These developments have helped unwind the geopolitical risk premium that had previously driven oil prices to fresh highs for the year.
"A renaissance in risk is unfolding, sparked by two forces suddenly snapping into alignment," said Ben Emons, founder of FedWatch Advisors. "Meta's release of free AI agents and the IRGC's signal that it may open the Strait within seven days acted like a jumper cable to a market that had been drifting."
Brian Sozzi is Yahoo Finance's Executive Editor, host of the Power Players With Brian Sozzi podcast, and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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Goldman Sachs: Fed to deliver final 2026 rate hike in October if oil falls