Hormuz Blockade Enters Seventh Week, Goldman Sachs: This Is Not a Replay of 2022 Inflation Surge; Two Rate Cuts Still Possible This Year

As tensions between the United States and Iran continue to escalate, Goldman Sachs asserts that the current energy price shock will not repeat the nightmare of the 2022 inflation surge and maintains its forecast for two rate cuts this year.

Peace negotiations between the US and Iran failed to yield an agreement over the weekend in Islamabad. Reports indicate that a blockade operation led by the US, involving 15 warships, commenced early Monday morning in the Strait of Hormuz. Against this backdrop, Goldman Sachs analyst Jessica Rindels provided clients with an economic analysis framework to navigate the current wartime uncertainty and energy volatility. The core judgment is that this conflict will bring a mild stagflationary shock, but one far less severe than the impact of the Russia-Ukraine war.

The direct implications of Rindels' framework for the market are: inflation will rise, economic growth will slow, and unemployment will tick up slightly. However, the intensity of the shock will be insufficient to trigger a comprehensive supply chain crisis or force Federal Reserve Chair Jerome Powell into panic-driven rate hikes. Accordingly, Goldman Sachs has raised its inflation forecast, lowered its GDP forecast, and slightly increased its unemployment forecast.

Oil Price Shock Mechanism: Eroding Purchasing Power Without Triggering Capital Expenditure Boom

Rindels' analysis framework first clarifies the transmission path of rising oil prices. Higher oil prices will erode household purchasing power, push up overall inflation, and compress consumer spending—this is the core logic behind Goldman Sachs raising its inflation forecast and lowering its GDP forecast.

Notably, Rindels explicitly states that she does not expect rising energy prices to spark a capital expenditure boom in the US shale oil sector. She believes that oil and gas producers are too cautious to respond positively to what is expected to be a temporary spike in oil prices with capacity expansion. This means the economic impact of this energy shock will manifest more as downward pressure on the consumption side rather than upward support on the industrial side—leaving the economy with fewer buffers and greater drag.

Rate Cut Path: One 25 Basis Point Cut in September and Another in December

Under the aforementioned macro framework, Goldman Sachs maintains its forecast for two rate cuts this year. Rindels stated that the combination of rising unemployment and further moderate declines in core inflation—where the fading effect of tariffs (calculated on a year-over-year basis) is expected to outweigh the upward pressure transmitted from energy prices—will provide strong grounds for the Federal Reserve to cut rates by 25 basis points in both September and December.

However, Rindels also acknowledged existing uncertainties. She noted that if some members of the Federal Open Market Committee (FOMC) deem inflation still too high at that time and oppose rate cuts, she would not be surprised, and the committee's final decision remains difficult to predict—especially considering the transition of leadership within the Fed and the possibility of Powell stepping down.

Key Differences from 2022: Distinct Shock Intensity

A core judgment of Goldman Sachs' current framework is distinguishing the present situation from the inflation shock triggered by the Russia-Ukraine war in 2022. Rindels believes that the US-Iran conflict has now entered its seventh week; its disruption level to global supply chains is not on the same scale as the Russia-Ukraine war, and therefore lacks the conditions to trigger a comprehensive inflation surge similar to that of 2022.

In Goldman Sachs' view, the nature of this shock is closer to "mild stagflation" rather than "out-of-control inflation," which is the fundamental reason for maintaining the rate cut forecast instead of pivoting to a rate hike expectation. Meanwhile, another Goldman Sachs analyst, Shreeti Kapa, pointed out in a separate report that the stock market's "final showdown" is approaching, indicating a high level of internal consensus at Goldman Sachs regarding the critical juncture where the current market stands.