Goldman Sachs Dumps September Fed Rate Hike Expectations

Goldman Sachs has reduced its expectations for a Federal Reserve interest-rate hike in September, calling it 'very unlikely' due to softer US economic data. The bank's chief economist, Jan Hatzius, believes that weaker employment, retail sales, and inflation readings have substantially decreased the case for tighter monetary policy.

According to Bloomberg, traders have already adjusted their expectations for a quarter-point increase from December to January after fully pricing in a move just last week. Goldman Sachs thinks this adjustment has further to run, leaving short-term Treasury yields vulnerable to additional declines if incoming economic data remain soft.

The change in expectations follows two months of weaker labor market and inflation readings, which will make it difficult for policymakers favoring a cautious approach to monetary policy to support higher rates this year. The repricing has already reached the Treasury market, with two-year yields moving lower as investors reduce near-term tightening bets.