Goldman Sachs: labour market "not that interesting" as inflation dominates Fed debate
At a Glance
The desk conveys that inflation concerns remain at the forefront of the Federal Reserve's policy decisions, with labour market dynamics playing a secondary role in shaping market sentiment. Per the full note from Goldman Sachs, the recent CPI print prompted a modest bond market rally as the likelihood of a Fed rate hike in September eased slightly. Notably, ongoing Treasury issuance pressures and strong corporate debt supply are contributing to a persistent rise in long-term yields—a dynamic expected to continue despite soft near-term data surprises from the employment sector.
Key Takeaways
- 01Inflation remains the dominant factor influencing the Fed's policy direction.
- 02Recent CPI and PPI readings have led to slight easing in Fed rate hike expectations.
- 03Structural pressures from Treasury issuance are pushing long-term yields higher.
- 04The labour market data is secondary to inflation concerns that are shaping the monetary policy landscape.
Full Analysis
What the desk is arguing
The desk emphasizes that while labour market indicators are softening, inflation takes precedence for the Fed's next moves. Goldman Sachs notes that the cooler-than-expected PPI reading has not altered the overarching narrative that inflation remains the key variable for monetary policy direction.
Supporting this assertion, Goldman reports that the CPI data was mostly in line with expectations, although they anticipate core PCE to decrease towards 2% by next year. This reinforces the view that the current tightening cycle may not yet be fully priced into markets, hence expecting a curve steepener trade to take advantage of potential shifts in policy trajectory.
Where it sits in our coverage
For EUR/USD, the current spot is 1.1466, with a consensus target of 1.1700 (range: 1.1200–1.2000) by March 2026. Specific firm targets for this pair include: - Goldman: Mar26 1.1800 - Morgan Stanley: Mar26 1.2000 - Rabobank: Mar26 1.1759
The desk's view aligns closely with Goldman, which suggests a target within the upper range of the consensus, indicating a potential bullish stance compared to peer forecasts. The divergence is marked against bears such as UBS with a middle range estimate aligned towards prolonged USD strength.
How other firms see it
Firms such as Goldman, Morgan Stanley, and Commerzbank maintain bullish views on the euro against the dollar, signaling a consensus for upward movement. Conversely, contrary views are held by firms like UBS, which suggest a more cautious approach towards a weakening dollar as long-term structural factors play out.
In relation, watch the GBP/USD trajectory as it may intersect with the Fed's decisions on interest rates, revealing market sentiment shifts directly influenced by inflation data.
Market Implications
Traders should be attentive to bond market movements and Fed commentary as potential catalysts for shifts in currency levels, particularly watching for a reversal in sentiment around the 1.1700 consensus target for EUR/USD. Upcoming retail sales data may further impact the market outlook ahead.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Société Générale | Bearish | 1.1400 |
Scotiabank | Bearish | 1.1200 |
Commerzbank | Bullish | 1.2200 |
From the original
Last week's in-line CPI print triggered a modest bond rally, with pricing for the Fed's September meeting easing slightly, according to Goldman Sachs. A cooler than expected PPI reading then helped push the S&P 500 to a record closing high last Thursday. Goldman flags that heavy
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