Odds of a Fed rate hike in September as well as in 2026 slipped further. This comes after Goldman Sachs says markets are still too hawkish even as inflation cools. Bitcoin price and US stock futures are rising as rate hike odds drop.
Odds of a Fed rate hike in September or 2026 slip further after Goldman Sachs says markets are still too hawkish even as inflation cools. As a result, US stock futures and Bitcoin price are bouncing today. The Wall Street banking giant claimed a rate hike at the Fed's September meeting has become "very unlikely" due to softer retail sales data, a slowing labor market, and cooling inflation prints.
"Under our baseline economic forecasts, the inflation news is more likely to improve further than to deteriorate anew as the year progresses," Goldman Sachs chief economist Jan Hatzius wrote in a client note. "We still think market pricing for the funds rate is too hawkish," he added. Goldman Sachs predicts the Fed will hold the federal funds target range at 3.50%-3.75% through the remainder of 2026, with any rate cuts postponed to 2027.
Traders had fully priced a 25 bps Fed rate hike by December as recently as a week earlier, but it has now shifted to January 2027. At press time, CME FedWatch Tools shows a 30% odds of a 25 bps Fed rate hike in September, with chances of a pause rising to almost 70%. Goldman Sachs sees further room for hawkish bets to unwind.
In contrast, prediction markets are leaning toward 'No' bets on the Federal Reserve raising interest rates at least once in 2026. Polymarket data shows No bets at 53% while Yes trades at 47%. The hawkish Fed rate hike bets kept long-dated Treasury yields elevated even as price pressures ease, weakening the rally that slowing inflation would normally deliver.
The 2-year US Treasury yield slips further to nearly 4.12% today, while investors await FOMC minutes for more cues. Meanwhile, the 10-year US Treasury yield has dropped to 4.676% today. The US dollar index (DXY) has also slipped 0.31% to 99.36 on cooling inflation and reduced Fed rate hike odds, according to Goldman Sachs.
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