Contradicting Expectations! Goldman Sachs Strategist: The Federal Reserve May Remain Steady This Year

There are very limited signs of inflation spreading to broader areas.

Written by: Bu Shuqing, Wall Street Insights

Goldman Sachs has a clear divergence from mainstream market expectations— the firm believes that the Federal Reserve will keep interest rates unchanged for the foreseeable future and anticipates that inflation pressures will gradually ease in the second half of 2026.

Matheus Dibo, head of investment strategy for Europe, the Middle East, and Africa at Goldman Sachs, stated on Bloomberg TV on Wednesday that while the market is currently pricing in a rate hike, Goldman holds a different view, believing that the Federal Reserve will remain steady throughout 2026. He pointed out that the inflation data at the beginning of the year was driven by one-off factors such as oil prices, the World Cup, and tariffs, and there are very limited signs of inflation spreading to broader areas.

This judgment shows a significant gap from current market pricing. Traders are currently pricing in about a 50% probability of a 25 basis point rate hike in September, while economists predict that after the unexpected 0.4% drop in the last core CPI, this period's data will rebound by 0.1%. Dibo acknowledged that there are upside risks but maintains the baseline judgment of keeping the Federal Reserve unchanged.

The Federal Reserve Can Afford to Wait and See, No Urgent Action Needed

Dibo elaborated on the logic of moderating inflation from multiple dimensions. He stated that housing inflation should slow down with the trends in the real estate market. On the wage front, he believes that wages will not become a major source of inflation, as the U.S. labor market is far from overheating.

The U.S. employment report released last week left the market still digesting its implications. Dibo described the current labor market as a "balanced state"—neither large-scale hiring nor large-scale layoffs, overall in a state of stagnation. In his view, this pattern does not constitute a driving force for inflation.

Dibo stated that the Federal Reserve is fully capable of waiting for more data before making decisions, with no need to act prematurely. In his view, the current economic environment provides ample observation windows for monetary policy.

However, he also admitted that risks are not symmetrically distributed. "We fully acknowledge that risks are tilted towards the direction of rate hikes, especially if inflation data in the coming periods exceeds expectations." This means that Goldman Sachs' prediction of remaining steady is based on the premise that inflation does not unexpectedly rise further.

Market and Goldman Sachs Have Diverging Judgments, CPI Data Becomes a Key Variable

Current market pricing shows that traders have about a 50% probability expectation for a rate hike in September, directly opposing Goldman Sachs' baseline judgment.

The upcoming July U.S. CPI report will become an important checkpoint for testing both sides' judgments.

Economists predict that the core CPI will rise by 0.1% month-on-month, significantly narrowing from the previous unexpected drop of 0.4%. If the data exceeds expectations again, market rate hike expectations may further heat up, posing a challenge to Goldman Sachs' judgment; conversely, if inflation continues to moderate, it will support their prediction of remaining steady.

This content is provided for general informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online promotions, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets. Crypto assets are highly volatile and may result in loss. The availability of WEEX services, products, and related events may vary by region. You are responsible for ensuring that your participation is in accordance with applicable local laws and regulations.