Goldman says market bets on Fed rate hikes are too aggressive

Markets have been pricing in a meaningful chance the Federal Reserve will raise interest rates again. Goldman Sachs thinks they are getting ahead of themselves. The firm’s analysts, including David Mericle and Manuel Abecasis, argue that market-implied odds of a rate hike have climbed to around 45%, a level Goldman considers far too elevated given the underlying economic data. Their own internal estimate sits closer to 25%. What the data actually shows The spike in market expectations traces back largely to rising oil prices tied to geopolitical tensions. When energy costs jump, traders instinctively reach for the rate-hike lever, anticipating that inflation will follow. Goldman is pushing back on that reflex. The firm argues the current oil supply shock is considerably smaller than the episodes that historically prompted the Fed to act aggressively on rates. July 2026 CPI data backs Goldman’s read. Inflation came in at 3.4% year-over-year, ticking down from 3.5% the prior month, with a month-over-month increase of just 0.1%. Wage growth has also softened, falling below the 2% threshold on an annualized basis. Goldman adds a fourth pillar to its argument: inflation expectations the...