Goldman Sachs: Referencing the 1990 Oil Crisis, the Fed Will Ultimately Cut Rates

Reported by Jinse Finance, on March 31, as Middle East conflicts drive oil prices higher and fuel inflation concerns, the global interest rate market has recently undergone a dramatic "hawkish repricing"—shifting from early-year bets on multiple Fed rate cuts to pricing in rate hikes by year-end. Goldman Sachs is questioning one of the most significant market pricing shifts this year. The firm stated that investors are overestimating the likelihood of the Fed raising rates in response to the current surge in oil prices. Goldman Sachs strategist Dominic Wilson outlined the firm's perspective in a research report: the market is overreacting to the oil shock, betting that the Fed will implement tightening policies, whereas historical experience suggests this scenario is unlikely. The 1990 historical reference is central to Goldman Sachs' judgment. During that year, when faced with an oil supply shock, bond yields surged significantly, and investors bet that the Fed would tighten policy. However, the Fed ultimately took the opposite approach, opting to cut rates as the economic situation deteriorated. Goldman Sachs' core logic is that inflation driven by rising oil prices is a supply-side shock rather than demand-side overheating. Historically, the Fed has typically ignored supply-side inflation pressures and refrained from tightening monetary policy as a result. This tendency becomes even more pronounced when economic growth is already slowing. (Dongxin News Agency)