Goldman Sachs Explains Why More US Fed Rate Hikes Are Unlikely

Goldman Sachs says markets are pricing in more Fed rate hikes than anticipated and denies claims that a pause is off the table. Increasing expectations that the Federal Reserve will raise interest rates are sending Treasury yields and the US dollar higher. This is putting more pressure on Bitcoin and other risk assets.

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Goldman Sachs Says Fed Won’t Enter Sustained Rate Hike Cycle

In a Goldman Sachs Exchanges discussion, Vice Chairman and former Dallas Fed President Rob Kaplan said markets are pricing in more tightening than the economy warrants. AI infrastructure, defense spending, and related capex remain strong, which are supporting resilient economic growth.

At the same time, interest-rate-sensitive sectors such as housing, autos, and sales to lower- and moderate-income consumers are already sluggish under current rates.

Kaplan admits one more Fed rate hike is possible, taking the funds rate to roughly 4-4.25%. However, this could follow a potential pause amid the nominal neutral rate. He prefers to skip in October for fresh data and market conditions.

“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. Then I want to take a fresh look and see whether or not we need to do more,” he said.

Goldman Sachs reveals 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.

Notably, August’s stronger-than-expected retail sales data locked in the September Fed rate hike. The data showed retail sales jumped most in five months, indicating the US economy remains resilient and can take higher borrowing costs.

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Goldman Sachs Sees Core PCE Falling to 2.2%

The Wall Street giant revealed core PCE inflation drivers such as tariffs, oil prices, software and accessories, and portfolio-management fees will peak and then fade. Goldman Sachs forecasts core PCE declining toward 2.2% year-over-year by Q4 2027.

Experts say the Wall Street firm’s latest 2.2% core CPI forecast makes a string of additional hikes beyond current pricing hard to justify. Fed officials will assess further economic data to confirm a pause or rate hike.

The research notes that investors have become overdependent on these inflation effects, such as oil prices, to make trades. Once they diminish, the remaining inflation gap to the 2% target narrows without the need for a Fed rate hike.

Bitcoin and Crypto Markets Under Pressure

Bitcoin price hit $87,000 despite the Fed’s dot plot signaling one more rate hike by year-end. The BTC price plunged as the 10-year US Treasury yield hit a 19-year high of 5.14% and the US dollar index (DXY) jumped to 101.25 on Thursday.

Moreover, Friday’s monthly Bitcoin options expiry puts pressure on Bitcoin, with the price currently trading at $83,703. The broader crypto market also slipped tracking the top crypto asset. Trading volume has increased by 7% over the past 24 hours.

$1.8 trillion Franklin Templeton says Bitcoin is entering a new bull market. “Institutional investors are now coming in,” it added. Upside momentum favors $100K next as institutional interest rises and long-term whales step in.

Derivatives markets show buying sentiment remains intact, according to Coinglass data. BTC futures open interest is climbing after dropping 5% over the past 24 hours. Notably, CME futures open interest continued to witness rising open interest over the past 24 hours, up 0.77%, while investors elsewhere brace for options expiry.

Also Visit: Will the Fed Raise Interest Rates After the October 2026 Meeting? Odds Split 50–50