Goldman Sees Only One More Rate Hike After October

Goldman Sachs is adjusting its views on interest rates and inflation, suggesting that markets may be overestimating the need for further tightening. According to Goldman's chief economist, Hatzius expects another rate hike in October, but believes that after this point, the Fed will stop raising rates. This view is at odds with market pricing, which suggests a more aggressive tightening cycle.

Goldman cites several factors supporting its dovish stance, including recovering Middle Eastern oil exports and softer US consumption. The firm also expects core PCE inflation to fall to 2.2% by late 2027, suggesting that the recent inflation surge may be temporary. Energy prices are seen as a key driver of inflation, with Brent crude expected to ease towards $85 by December.

The real disagreement between Goldman and market expectations begins after October, with Goldman expecting only one more Fed hike. This view is echoed across other regions, including Europe, Japan, Canada, and Australia, where the firm's probability-weighted rate paths sit below market pricing.