Goldman Sachs: A September Fed rate hike is almost ruled out — the market is too optimistic
Goldman Sachs analysts have concluded that current market expectations regarding further tightening of the US Federal Reserve's monetary policy are significantly overstated. Against the backdrop of inflation slowing to 4%, the bank's chief economist Jan Hatzius assesses the probability of a rate hike at the September meeting as "extremely low." This skepticism is based on a set of weak macroeconomic signals, including sluggish retail sales and disappointing labor market data.
Particular attention is drawn to the dynamics of market expectations. Just a week ago, traders fully priced in a 25-basis-point move as early as December, but now the horizon of these expectations has shifted to January 2027. Such a shift reflects investors' growing uncertainty about the regulator's ability to continue an aggressive tightening cycle amid cooling economic activity.
Fundamental factors pressuring the rate
The combination of indicators suggests that the peak of tightening has likely already passed. Weak consumer activity, which is a key driver of the US economy, combined with a cooling labor market, creates a risk of excessive slowdown. At the same time, inflation declining to 4% gives the Fed room for a pause without undermining confidence in its price stability mandate.
However, it is worth emphasizing: the market, by shifting expectations to such a distant horizon, demonstrates not only a reassessment of near-term steps but also a potential underestimation of inflationary risks. If employment data continues to deteriorate, the regulator may face a dilemma between supporting growth and fighting inflation, which would make current forecasts even more fragile.
From my point of view, investors should prepare for a prolonged pause in the hiking cycle, but not for a reversal. The Fed will most likely prefer a wait-and-see stance to assess the accumulated effects of previous steps. Therefore, any speculation about imminent rate cuts is premature, and volatility in markets will persist until inflation and employment data become clearer in the coming months.