Goldman calls September Fed hike very unlikely as inflation eases
At a Glance
The desk interprets Goldman's recent commentary as a reaffirmation of dovish sentiment regarding U.S. monetary policy, especially as it pertains to the September Fed meeting. According to Goldman Sachs chief economist Jan Hatzius, sluggish economic indicators—including retail sales and payroll data—indicate a lower likelihood of an interest rate hike, dropping expectations for a move in September to around 30% and shifting the next potential increase to January 2027 instead of December 2026. This dovish outlook signals a broader reset in market pricing, particularly for U.S. Treasuries, where a steepening curve reflects diminishing rate hike expectations. As noted in the commentary, “the markets have not yet fully priced Goldman's more dovish view,” as two-year yields remain elevated above 4%. Overall, this dovish shift may have implications for the dollar's strength across pairs such as EUR/USD, GBP/USD, and USD/JPY.
Key Takeaways
- 01Goldman Sachs signals a low probability for a September Fed rate hike, citing poor economic data.
- 02Current market pricing shows a significant reset, with expectations for the next rate hike pushed to January 2027.
- 03The Treasury curve steepening reflects diminishing hike expectations; two-year yields above 4% indicate possible mispricing.
- 04EUR/USD, GBP/USD, and USD/JPY are key pairs to watch as monetary policy impacts play out.
Full Analysis
What the desk is arguing
The desk views Goldman's argument as a pivotal contribution to the current dovish shift in market sentiment regarding U.S. interest rates. Per the full note, Hatzius emphasizes that the confluence of weak retail sales, payroll growth, and declining inflation suggests the FOMC's doves hold the majority position ahead of the September meeting.
The desk believes that Goldman's assessment reflects the disconnect between market pricing and economic realities; current hike odds have slipped to around 30% from higher levels amidst growing concerns of economic downturn. This suggests that the market might still be overly reliant on aggressive Fed policies, with the potential for further movements in bond yields as investor sentiment realigns with the evolving data landscape.
Where it sits in our coverage
Current consensus for the EUR/USD pair sits at 1.1700, with a range from 1.1200 to 1.2000. Notably, goldman has a Mar-26 target of 1.1800, while anz expects a slightly more conservative 1.1609, and morganstanley stands out with a more bullish outlook at 1.2000.
This dovish sentiment from Goldman aligns with several other firms, including deutschebank and rabobank, both forecasting Mar-26 targets around the 1.1800 mark, which indicates a collective bearish stance on the dollar's near-term trajectory against the euro.
How other firms see it
Aligned firms such as rabobank and morganstanley echo similar bearish sentiments, while contrary views come from firms like socgen, projecting a slightly more aggressive outlook despite the recent data shifts. The divergence in targets highlights a broader uncertainty in market conditions moving forward.
The dovish Fed sentiment surrounding USD should be closely monitored alongside the performance of the GBP/USD and USD/JPY pairs, particularly as any signs of economic recovery could shift positioning rapidly.
Market Implications
Traders should focus on EUR/USD levels near 1.1700 to gauge market sentiment following Goldman's dovish call. Additionally, any shifts reported in upcoming economic data could further solidify or undermine the reset in rate hike expectations, particularly ahead of the September Fed meeting.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
ABN AMRO | Bullish | 1.1500 |
Bank of America | Bullish | 1.1500 |
From the original
Goldman's call, if it proves right, would extend the reset already underway in market pricing, where hike odds for September have fallen to around 30% and the next expected move has been pushed from December to January following softer July inflation data. Hatzius's argument rest
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