Major Wall Street banks contend that the recent oil price surge and robust US jobs growth pose limited risk of prompting Federal Reserve rate hikes, though anticipated rate cuts face delays.

Goldman Sachs led the pushback earlier this week. Analysts argued markets have overpriced hike odds at 45%, up sharply since the Iran conflict began. They highlighted the supply shock's smaller scale compared to past episodes, a less oil-dependent economy, softening labor conditions, anchored inflation expectations, and already tight financial settings equivalent to an 80 basis-point hike. Historical data shows no strong link between oil shocks and Fed tightening, per the note.

Morgan Stanley similarly expects the Fed to cut rates later in 2026 despite the oil-driven inflation spike. The bank focuses on stable long-term inflation expectations, which have held near pre-pandemic levels. Headline pressures from energy are seen as transitory with minimal pass-through to core inflation. Financial conditions have tightened by about 80 basis points since the Middle East tensions escalated, reducing the case for more restraint. Morgan Stanley forecasts two 25-basis-point cuts in the second half, targeting a 3.0%-3.25% policy rate.

The latest view from Citigroup, dated April 3, cites March's stronger-than-expected job gains—boosted by ending healthcare strikes and warmer weather—as justification to postpone rate cut expectations. Now anticipating 75 basis points of easing in September, October, and December rather than June, July, and September, Citi notes rising unemployment risks this summer amid the ongoing Iran war. Still, it expects labor market softening to eventually prompt cuts, just later than before.

Across these views, banks emphasize anchored expectations and existing policy tightness as buffers against aggressive Fed action. The labor market shows breadth in gains but underlying softening, while geopolitical oil risks persist without clear resolution.