Sticky Inflation and the Fed
At a Glance
Goldman Sachs rates strategist Muhammad Qubbaj believes 10-year Treasury yields have already seen their cycle highs, even with October CPI running hotter than consensus and pushing a 50bp December hike back onto the table — though the desk still frames 25bp as the more probable outcome. Per the full note , the team reads the market's prior decline in hike expectations as the setup that made the bond-yield surge so violent, and argues the Fed's own communications now lag a data-dependent reality. The practical takeaway for FX is a rates-led dollar that is more about the terminal-rate path than the next print, with EM credit stability and Brazil fiscal risk flagged as the secondary macro threads. No tracked currency pairs intersect this piece in our coverage, so the synthesis stays with the rates thesis and its cross-asset read-through.
Key Takeaways
- 01Goldman's Muhammad Qubbaj expects 10-year Treasury yields to stay below recent highs despite a hot October CPI print.
- 02A 50bp December Fed hike is 'on the table,' but the desk still sees 25bp as the more likely outcome.
- 03The market had been pricing a 25bp December move before the CPI surprise, which the desk reads as a positioning-driven yield spike rather than a terminal-rate repricing.
- 04EM credit stability and Brazil fiscal risk after Lula's re-election are the note's secondary macro threads.
- 05Goldman economists do not expect fiscal consolidation in 2027 even where developed economies exceed the historical threshold.
Full Analysis
What the desk is arguing
The desk's core call is that 10-year Treasury yields will not exceed recent highs, even as the market absorbs a hot October inflation print — a view articulated by Muhammad Qubbaj, co-head of North America Interest Rate Product Sales and Trading at Goldman Sachs. The framing is that the recent yield spike was a positioning unwind, not a repricing of the terminal rate higher.
Supporting evidence comes from the shape of rate expectations into December. Qubbaj notes the market had been pricing a 25bp hike before the hot CPI surprise, and that the print landed as a genuine shock, which is what made the bond selloff so sharp. The 50bp option is now described as "on the table" for December, but the desk weighs a smaller move as more likely.
The counterfactual the note implicitly rejects is that October CPI marks the start of a sustained re-acceleration forcing the Fed into a faster, longer hiking cycle. Goldman's read is that communication lags and positioning, not a regime shift, explain the move — which is why the desk caps the yield outlook rather than extending it.
How other firms see it
Goldman's rates call is a single-house view rather than a cross-firm consensus here, and the note pairs it with two secondary macro threads: emerging market credit has weathered the 2022 energy shock with "newfound stability," while investors are watching Brazil's fiscal trajectory after Lula's surprise re-election. The desk's economists also do not expect governments to rein in deficits in 2027, even where developed economies sit above the historical fiscal-consolidation threshold.
The read-through for FX runs through the dollar complex rather than any single pair in our coverage. USD/JPY is the most direct expression of a capped-but-sticky US 10-year yield, while EUR/USD will take its cue from whether the Fed's terminal-rate pricing stabilizes or extends. Brazil fiscal risk transmission sits in EM FX crosses rather than the majors.
What the calendar says
The only dated catalyst the note anchors to is the Federal Reserve's December meeting, where a 25bp versus 50bp outcome is the live debate. No high-impact events sit on our tracked calendar over the next 30 days for this jurisdiction, so the December FOMC is the pivot for the thesis rather than a near-term data point.
Market Implications
Watch 10-year Treasury yields holding below the cycle high as the confirmation signal; a break above recent highs would challenge the desk's capped-yield thesis and likely extend dollar strength into USD/JPY. Into the December FOMC, the 25bp-versus-50bp split is the key positioning driver, and the rates market's repricing of the terminal rate is the cleanest tell for whether the dollar bid extends.
From the original
Emerging market credit matures .keep-white { color:#ffffff !important; } .keep-black { color:#000000 !important; } .gsFooterGrey * { color:#000000 !important; } ul.gsFlushList li { text-indent:-1em !important; marg