Goldman calls September Fed hike very unlikely as inflation eases
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.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
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.
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.
Risks to this view
The bullish case for the dollar could be invalidated by unexpectedly strong economic data or hawkish signals from the Fed, which could rapidly shift market sentiment back towards aggressive rate hike expectations. Key reports on labor and inflation should be closely monitored for any signs of resilience in the U.S. economy.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
ABN AMRO | Bullish | 1.1500 |
Bank of America | Bullish | 1.1500 |
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 rests less on a single data point than on a run of underwhelming releases, retail sales, payrolls, and inflation all missing, giving the bank confidence the FOMC's doves have no reason to shift toward hikes at the September 15-16 meeting. The flagged steepening in the Treasury curve is the more actionable signal for rates desks, with Goldman attributing it to a combination of cooling price pressures, fading hike expectations, and fiscal concerns rather than any single driver, while two-year yields holding above 4% suggests the market has not yet fully priced Goldman's more dovish view.
A note carrying this much conviction from Goldman's chief economist typically moves positioning at the margin, particularly with FOMC minutes and further data due before the meeting. --- Earlier: Jackson Hole hype outruns Warsh playbook of saying as little as possible --- Goldman's chief economist thinks the market is still pricing in too many rate hikes given how quickly the data has turned, and he expects the Treasury curve to reflect that shift as it plays out. Summary: Goldman Sachs chief economist Jan Hatzius called a September Fed rate increase very unlikely in a note published Sunday Hatzius cited sluggish retail sales, weak jobs numbers, and decelerating inflation as reasons to doubt the FOMC will act at its September 15-16 meeting He said Goldman's baseline forecasts point to further improvement in inflation rather than renewed deterioration, and that market pricing for the funds rate remains too hawkish CME FedWatch data puts the odds of a 25 basis point hike to 3.75%-4% at around 30% heading into the September meeting, with market expectations for the next hike shifting from December to January after softer July inflation data Goldman expects the Treasury yield curve to steepen, citing cooling inflation, fading rate hike expectations, and fiscal concerns, even as two-year yields remain above 4% Goldman Sachs has called a September Federal Reserve interest rate increase very unlikely, with chief economist Jan Hatzius arguing that market expectations for further hikes remain too aggressive given the trajectory of recent inflation data, according to Bloomberg (gated). Hatzius made the call in a note published Sunday, pointing to a run of underwhelming economic readings, including sluggish retail sales, weak jobs numbers, and decelerating price pressures, as grounds for scepticism that the Federal Open Market Committee will move at its September 15-16 meeting.
Hatzius wrote that after two months of materially softer jobs and inflation data, it is difficult to see any of the committee's doves shifting toward supporting a hike. He said Goldman's baseline forecasts point to further improvement in inflation rather than a renewed deterioration as the year progresses, and reiterated the bank's view that market pricing for the funds rate remains too hawkish. Market pricing has already begun moving in that direction.
Sources & References
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