Contrarian View! Goldman Sachs Strategist: Fed May Remain on Hold Entirely in 2026, Refuting Market Rate Hike Expectations

Goldman Sachs has diverged significantly from mainstream market expectations— the firm believes the Federal Reserve will keep interest rates unchanged in the foreseeable future and expects inflationary pressures to gradually subside 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 Television on Wednesday that although the market is still pricing in rate hikes, Goldman Sachs holds a different view, believing that the Federal Reserve will remain on hold throughout 2026. He pointed out that inflation data at the beginning of the year was driven by one-off factors such as oil prices, the World Cup, and tariffs, with very limited signs of inflation spreading to broader areas.

This judgment contrasts sharply with current market pricing. Traders are currently pricing in approximately a 50% probability of a 25-basis-point rate hike in September, while economists predict that the core CPI will rise by 0.1% month-on-month in this period, following an unexpected 0.4% decline in the previous period. Dibo acknowledged the existence of upside risks but maintained the baseline judgment that the Federal Reserve will remain on hold.

The Fed Can Afford to Wait and See, With No Rush to Act

Dibo elaborated on the logic behind moderating inflation from multiple dimensions. He stated that housing inflation should slow down in line with trends in the real estate market. Regarding wages, he argued that wage growth would not become a primary source of inflation, reasoning that the US labor market is far from overheating.

The US employment report released last week is still being digested and interpreted by the market. Dibo described the current labor market as being in a state of "equilibrium"—with neither large-scale hiring nor massive layoffs, resulting in overall stagnation and balance. In his view, this pattern does not constitute a driving force for rising inflation.

Dibo stated that the Federal Reserve has ample capacity to wait for more data before making decisions, without needing to act prematurely. In his view, the current economic environment provides a sufficient window for observing monetary policy effects.

However, he also candidly admitted that risks are not symmetrically distributed. "We fully acknowledge that risks are skewed towards rate hikes, especially if inflation data in the coming periods unexpectedly rises." This means that Goldman Sachs's prediction of staying on hold is premised on inflation not rising unexpectedly further.

Divergence Between Market and Goldman Sachs Judgments, with CPI Data as a Key Variable

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

The upcoming July US CPI report will be a critical juncture to test the validity of both sides' judgments.

Economists predict that the core CPI will rise by 0.1% month-on-month, a significant narrowing compared to the unexpected 0.4% decline in the previous period. If the data again exceeds expectations, market expectations for rate hikes may further intensify, challenging Goldman Sachs's judgment; conversely, if inflation continues to remain moderate, it will support their prediction of staying on hold.