Key facts
- Goldman Sachs assesses a September Fed rate hike as "very unlikely" due to cooling inflation and soft economic data.
- Chief Economist Jan Hatzius believes market pricing for the federal funds rate is too hawkish.
- The bank forecasts the Fed will hold rates steady through 2026, with cuts expected in 2027.
- Market odds for a September hike have fallen significantly, with most expecting a pause.
- Bitcoin price and US stock futures saw gains following the assessment.
Goldman Sachs has stated that a Federal Reserve interest rate increase in September is "very unlikely," citing a combination of cooling inflation and softer economic data. Chief Economist Jan Hatzius noted that retail sales and employment figures have slowed, and inflation prints have eased, suggesting further improvement is likely.
Hatzius indicated that current market pricing for the federal funds rate is considered too hawkish. Goldman Sachs forecasts the Fed will maintain its target range of 3.50%-3.75% through the remainder of 2026, with any potential rate cuts being postponed to 2027. This outlook contrasts with recent market expectations, where traders had fully priced in a 25 basis point hike by December, a probability that has now shifted to January 2027.
Market data reflects this shift, with CME FedWatch Tools showing approximately a 30% chance of a September rate hike, while the probability of a pause has risen to nearly 70%. Prediction markets also show a slight lean towards 'No' bets on any rate increases occurring in 2026.
The reduced odds of further rate hikes have led to a decrease in long-dated Treasury yields, with the 2-year yield slipping to nearly 4.12% and the 10-year yield dropping to 4.676%. The US dollar index (DXY) also declined by 0.31% to 99.36. In response to these macro shifts, Bitcoin prices saw a jump of over 1%, trading around $63,503 with increased trading volume.