Goldman Sachs on Friday reduced its forecast for U.S. economic growth in 2026, lowering its Q4-over-Q4 GDP projection by 0.3 percentage points to 2.2%. The revision reflects the bank's assessment that rising oil prices tied to the war with Iran will weigh on activity and lift inflation over the coming quarters.
The firm's commodity strategists now expect Brent crude to average $98 per barrel in March and April, a level roughly 40% higher than the 2025 average, before a projected decline to $71 per barrel by the fourth quarter of 2026. In a downside-of-supply scenario in which oil flows through the Strait of Hormuz are interrupted for one month, Goldman Sachs models an even larger near-term spike - an average Brent price of $110 in March and April - followed by a fall to $76 by Q4 2026.
Those oil price assumptions feed directly into Goldman Sachs' inflation outlook. The bank raised its forecast for year-over-year headline PCE inflation in December 2026 by 0.8 percentage points to 2.9%, and it lifted its core PCE projection by 0.2 percentage points to 2.4%. Goldman Sachs quantifies the pass-through from energy to consumer inflation: a sustained 10% rise in oil prices is estimated to raise headline PCE by 0.2 percentage points and core PCE by 0.04 percentage points, while reducing GDP growth by about 0.1 percentage points.
Alongside the growth and inflation revisions, Goldman Sachs increased its near-term recession probability. The firm now assigns a 25% chance of recession over the next 12 months, up 5 percentage points from its prior assessment. That probability is noted as 10 percentage points above Goldman Sachs' unconditional long-term average but consistent with the most recent Bloomberg consensus. The bank cited both the upside risk to inflation from higher energy prices and a weaker U.S. jobs report for February as factors behind the increased recession risk.
Monetary policy expectations were also pushed out. Goldman Sachs delayed its projection for the Federal Reserve's first policy rate cut from June to September, with a second cut expected in December, bringing the terminal federal funds rate to a range of 3.0% to 3.25%. The bank said that while elevated oil prices pose an inflationary concern, they would not prevent earlier rate reductions if the labor market were to soften sooner and more sharply than anticipated.
Analysis note: The revisions tie movements in oil markets closely to inflation and growth outcomes in Goldman Sachs' baseline and stress scenarios, and they have prompted the bank to reassess both recession odds and the timing of Fed easing.