Goldman Sachs Doubts Rate Hike as Inflation Eases

Goldman Sachs has called a September Federal Reserve interest-rate increase 'very unlikely,' citing underwhelming economic readings and cooling inflation as grounds for skepticism. Chief economist Jan Hatzius made the call in a note published Sunday, pointing to sluggish retail sales, lackluster jobs numbers, and decelerating price pressures.

The bank's baseline forecasts suggest further improvement in inflation rather than a renewed deterioration, according to Hatzius. 'After two months of materially softer jobs and inflation data, it's hard to see any of the doves shifting toward hikes,' he wrote. Market expectations for future rate increases remain too aggressive, Goldman Sachs argues.

The odds of a 25-basis-point increase to the 3.75%-4% target range are around 30%, according to CME FedWatch data. Expectations shifted last week after July inflation data came in lower than anticipated. Market participants have shifted their view on when the next 25-basis-point increase will arrive, now pointing to January.