Goldman Sachs Sees Limited Room for Further Rate Hikes

Goldman Sachs' Vice Chairman and former Dallas Fed President Rob Kaplan recently discussed the likelihood of further US Federal Reserve rate hikes. According to him, markets are currently pricing in more tightening than the economy warrants. This has led to an increase in Treasury yields and the US dollar, putting pressure on Bitcoin and other risk assets.

Kaplan noted that while AI infrastructure, defense spending, and related capex remain strong, supporting resilient economic growth, interest-rate-sensitive sectors such as housing, autos, and sales to lower- and moderate-income consumers are already sluggish under current rates.

He suggested that one more Fed rate hike is possible, taking the funds rate to roughly 4-4.25%, but emphasized that this could follow a potential pause amid the nominal neutral rate. Kaplan prefers to skip in October for fresh data and market conditions, saying 'I would probably be inclined, unless there's a reason to act in October, I'd be inclined to skip October. We'll see if they do. And then look again about moving again in December.'

The Wall Street giant revealed that markets have built in a risk premium due to uncertainty over oil prices and Fed Chair Kevin Warsh's policy outlook. The labor market is in a 'low fire, low hire' state rather than overheating, giving the Fed less reason for aggressive rate hikes.