A clear divergence has emerged between Goldman Sachs and mainstream market expectations, with the investment bank asserting that the Federal Reserve will maintain its current interest rate stance for the foreseeable future and forecasting that inflationary pressures will gradually subside by the second half of 2026.
Matheus Dibo, Head of EMEA Investment Strategy at Goldman Sachs, stated on Bloomberg Television Wednesday that despite the market continuing to price in rate hikes, the firm holds a different perspective, believing the Fed will remain on hold throughout all of 2026. He pointed out that early-year inflation data was driven by one-off factors such as oil prices, the World Cup, and tariffs, with very limited evidence of inflation spreading to broader segments of the economy.
This assessment stands in stark contrast to current market pricing. Traders are currently pricing in roughly a 50% probability of a 25-basis-point rate hike in September, while economists forecast that the upcoming core CPI data will rebound by 0.1% month-over-month, following an unexpected 0.4% decline in the previous reading. Dibo acknowledged the presence of upside risks but maintained his baseline view that the Fed will not move.
The Fed can afford to wait and see without needing to act
Dibo elaborated on the logic behind inflation trending towards moderation from multiple angles. He stated that housing inflation should slow down in line with real estate market trends. On the wage front, he argued that wages are unlikely to become a primary source of inflation, as the U.S. labor market is far from being overheated. The market is still digesting the implications of last week's U.S. employment report.
Dibo described the current labor market as being in a state of "equilibrium"—characterized by neither large-scale hiring nor large-scale layoffs, but rather a stagnant equilibrium overall. He views this dynamic as not constituting a driver of inflation. Dibo stated that the Fed is fully capable of waiting for more data before making any decisions, without needing to preempt. In his view, the current economic environment provides a sufficient window for policy observation.
However, he also acknowledged that the risks are not symmetrical. "We fully acknowledge that the risks are tilted towards a rate hike, especially if inflation data over the next few periods comes in higher than expected," he said. This means Goldman Sachs's wait-and-see prediction is predicated on the assumption that inflation will not unexpectedly surge further.
Market and Goldman Sachs diverge as CPI data becomes a key variable
Current market pricing shows traders assigning approximately a 50% probability to a September rate hike, directly opposing Goldman Sachs's baseline view. The upcoming July U.S. CPI report will serve as a critical juncture to test both sides' predictions. Economists forecast a 0.1% month-over-month increase in core CPI, a significant narrowing from the prior month's unexpected 0.4% decline. If the data surprises to the upside once more, market expectations for a rate hike could intensify, challenging Goldman Sachs's outlook. Conversely, if inflation continues to moderate, it would provide support for the firm's prediction of no rate change.
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