Goldman Sachs analysts generally do not expect an interest rate hike from the Federal Reserve at its current monetary policy meeting, despite the outcome being deemed "unusually uncertain" by the firm. The analysts, including David Mericle, suggest that recent softer June inflation data has likely reduced immediate support for a rate increase. The Federal Reserve has also historically avoided surprising the market with unexpected rate hikes.
The current market sentiment, as indicated by CME FedWatch, predicts a roughly one-in-three chance of a hike, with a 64% probability that borrowing costs will remain unchanged, between 3.5% and 3.75%. While the Fed's policy statement might acknowledge inflation risks stemming from renewed geopolitical conflict, and at least one dissent in favor of a hike is anticipated, Goldman analysts believe improved inflation data will likely prevent an immediate increase.
Upcoming core personal consumption expenditures figures for June are also expected to show a "softer trend." Robert Kaplan, Vice Chairman at Goldman Sachs, emphasized the Fed's role as a risk manager, especially in light of the war in Iran, suggesting they should remain cautious at this time. Meanwhile, the bond market is already reacting, with the 10-year yield at 4.70%, its highest since January 2025, and oil prices near $96.78 a barrel, previously pulling back from $100 after reports of potential US-Iran talks.
