Goldman Sachs Research says Fed to hold rates in the United States through 2026; Inflation softer supports longer hold through 2026
The Outlook for the Fed
The key insights today: ▪Bond markets interpreted Wednesday’s Fed meeting as dovish, but Goldman Sachs Research expects the central bank to keep rates steady throughout 2026. ▪Goldman Sachs Research suggests five ways to protect portfolios amid an investment boom and rising inflation volatility. ▪Demand for critical minerals and rare earths is driving M&A and capital raising activity. ▪Robust corporate earnings and signs of a resilient US economy suggest the US stock rally could have room to run, according to Goldman Sachs Wealth Management’s Investment Strategy Group. ▪Briefings Brainteaser: What percentage of capital spending by the biggest US tech companies is expected to be funded by debt this year? Want to sign up and stay connected? Click here. Why Goldman Sachs Research Expects the Fed to Remain on Hold in 2026 Ahead of this week’s Federal Open Market Committee (FOMC) meeting, markets were signaling the most uncertainty in three decades about whether policymakers would hike, according to David Mericle, chief US economist in Goldman Sachs Research. In the end, the meeting was “somewhat anticlimactic,” Mericle writes in a report. The FOMC held rates steady but issued no guidance on the future direction of rates and no details on the committee’s interpretation of the impact of inflation. “We had expected that most FOMC voters would not want to hike because the June inflation data showed substantial improvement relative to prior months,” Mericle writes. Kevin Warsh, who became chairman of the Federal Reserve in May, made several comments in his press conference after the FOMC meeting that Goldman Sachs Research interpreted as dovish, Mericle writes. Warsh appeared to downplay artificial intelligence-related price pressures and seemed to suggest that they are isolated from broader pricing trends. Asked if the rise in real, inflation-adjusted interest rates was a signal that the market thought the Fed should hike, he connected it instead to the recent strength of the economy. Warsh also hinted that the rise in market interest rates could substitute for a rate hike, though without saying so explicitly. Finally, asked if the Fed needed to raise interest rates to lower inflation, he suggested that more credibly committing to the inflation target could help to lower inflation by bringing down inflation expectations. “This contrasts with our reading of the evidence from economic research, which suggests that it is difficult for the Fed to influence inflation through the expectations channel” because most businesses and consumers are less attuned to central banks, Mericle writes.
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