Goldman Sachs: Referencing the 1990 oil crisis, the Federal Reserve will eventually cut interest rates

Ask AI · Why Goldman Sachs is looking to the 1990 oil crisis to predict a Fed rate cut?

[Goldman Sachs: Citing the 1990 oil crisis, the Fed will eventually cut rates] Caixin Media, March 31—As the Middle East conflict ignites oil prices and stokes worries about inflation, global interest-rate markets have recently undergone a dramatic “hawkish repricing.” The market has shifted from pricing in multiple Fed rate cuts earlier in the year to pricing in rate hikes by year-end. Goldman Sachs is now questioning one of the biggest market repricing shifts this year. The firm said investors are overestimating the likelihood that the Fed will raise rates to counter the current surge in oil prices. In a research note, Goldman strategist Dominic Wilson laid out the firm’s view: the market is overreacting to the oil shock, betting that the Fed will introduce tightening measures, but based on historical experience, this outcome is unlikely. The historical reference from 1990 is at the core of Goldman’s judgment this time. Back then, when faced with an oil supply shock, bond yields surged sharply, and investors bet that the Fed would tighten policy. But in the end, the Fed did the opposite, choosing to cut rates as economic conditions deteriorated. Goldman’s core logic is this: the inflation surge driven by oil prices is a supply-side shock, not an overheating demand-side scenario. From historical precedent, the Fed typically ignores supply-side inflation pressures and would not tighten monetary policy as a result. When economic growth has already been slowing, this tendency becomes even more pronounced.