Goldman Sachs sees one more interest rate hike for 2026 at the Fed’s Oct. 27 meeting, and then the Fed could be done for this cycle.

However, a sustained pullback in oil prices that cools inflation is key to the two-and-done approach to rate hikes, Goldman said ahead of what many in the market expect to be a hawkish Fed meeting this month.

The firm predicts Brent crude oil will drop to $85 per barrel by December.

“There is little precedent in modern FOMC history for skipping meetings before elections; most strikingly, the committee hiked by 75bp six days before the 2022 midterms,” Goldman Sachs chief economist Jan Hatzius wrote in a new note. “Beyond October, we see a stable funds rate as core PCE inflation comes down faster than the committee projects, and we still expect rate cuts to our neutral rate estimate of 3.25-3.5% starting in late 2027.”

Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments

The call on oil looks to be correct, at least for this week.

Crude oil futures have experienced a sharp, multiday sell-off over the past week as lingering geopolitical supply fears have eased ever so slightly.

Brent crude has plummeted nearly 13% from its recent peak of $113 per barrel, breaking back below the key $100 psychological barrier to trade around $98.44.

The dramatic pullback was triggered by Saudi Arabia’s partial restart of its East-West Pipeline.

Adding further downside pressure was the diplomatic dialogue between the US and Iran at the United Nations General Assembly. This has helped to unwind the geopolitical risk premium that had previously driven oil prices to fresh highs for the year.

“A renaissance in risk is unfolding, sparked by two forces suddenly snapping into alignment,” FedWatch Advisors founder Ben Emons said. “Meta’s release of free AI agents and the IRGC’s signal that it may open the Strait within seven days acted like a jumper cable to a market that had been drifting.”

Brian Sozzi is Yahoo Finance’s Executive Editor, host of the ‘Power Players With Brian Sozzi’ podcast and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.

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