Singing a different tune! Goldman Sachs strategist: The Federal Reserve may remain on hold for the rest of the year, dismissing market expectations for interest rate hikes.

Goldman Sachs has a notable divergence from mainstream market expectations the firm believes that the Federal Reserve will maintain interest rates at their current levels for the foreseeable future and anticipates that inflation pressures will gradually ease in the second half of 2026. Matheus Dibo, Goldman Sachs head of investment strategy for Europe, the Middle East, and Africa, stated on Bloomberg TV on Wednesday that although the market is still pricing in the possibility of interest rate hikes, Goldman Sachs takes a different view, believing that the Federal Reserve will remain on hold throughout 2026. He pointed out that early-year inflation data was driven by one-time factors such as oil prices, the World Cup, and tariffs, and that there are only limited signs of inflation spreading to broader sectors. This judgment presents a significant gap from current market pricing. Traders are currently pricing in about a 50% chance of a 25 basis point rate hike in September, while economists predict that after an unexpected 0.4% decline in core CPI last month, the current data will rebound by 0.1% month-over-month. Dibo acknowledged the existence of upside risks but maintains the baseline judgment that the Federal Reserve will stay put. The Federal Reserve has the capability to wait for more data before making decisions and does not need to act prematurely. Dibo elaborated on the logic of moderating inflation from multiple angles. He stated that housing inflation is expected to slow in line with real estate market trends. On the wage front, he believes that wages will not become a major source of inflation, as the U.S. labor market is far from overheating. Last weeks U.S. employment report is still being digested by the market. Dibo described the current labor market as a "balanced state"neither experiencing mass hiring nor mass layoffs, but rather remaining in a state of stagnation. He believes this pattern does not create upward pressure on inflation. Dibo emphasized that the Federal Reserve is fully capable of waiting for more data before making decisions, allowing for ample observation of the current economic environment for monetary policy. However, he also admitted that risks are not symmetrically distributed. "We fully acknowledge that risks lean towards a rate hike, especially if future inflation data comes in unexpectedly high." This means Goldman Sachs prediction of inaction is predicated on the premise that inflation does not rise unexpectedly further. There is a divergence between the market and Goldman Sachs judgment, with CPI data being a key variable. Current market pricing shows that traders expect about a 50% probability of a rate hike in September, directly opposing Goldman Sachs baseline assessment. The upcoming July U.S. CPI report will be an important milestone for testing the judgments of both sides. Economists forecast that core CPI will increase by 0.1% month-over-month, significantly narrowing from the unexpected 0.4% decline in the previous period. If the data exceeds expectations again, market rate hike anticipation may further intensify, posing a challenge to Goldman Sachs judgment; conversely, if inflation remains moderate, it will support their prediction of remaining on hold. This article is reproduced from "Wall Street Insight," edited by Jiang Yuanhua.