Goldman Sachs rules out Fed rate hikes in 2026 despite Warsh's arrival

The American bank Goldman Sachs believes that the Federal Reserve will not raise interest rates for the remainder of 2026, despite market expectations following Kevin Warsh's appointment. The latest employment and inflation data support this view.

Goldman Sachs has come out in favour of the monetary policy of the Federal Reserve (Fed) led by Kevin Warsh. In a report published this week, the American firm states that the central bank will not raise interest rates in 2026, even though the market had begun to price in one or two hikes following Warsh's arrival at the helm.

Goldman Sachs Research's forecast is clear: the Fed will cut rates, but not this year. According to its analysts, the cycle of cuts will begin in 2027, when the US economy shows clearer signs of slowing down. For now, the entity believes that the risks of a rate hike are low, although it acknowledges that they have increased slightly compared to previous months.

The economic data gives Warsh some breathing room

The market had reacted nervously to Kevin Warsh's appointment, a profile considered hawkish (favouring a restrictive monetary policy). However, two macroeconomic publications have changed the landscape. The PCE inflation, the Fed's favourite indicator, rose to 4.1% overall and 3.4% in April, in line with expectations. Shortly after, the June employment report showed the creation of only 57,000 jobs, half of what was expected.

“These data reflect that the economy is not as overheated as previously thought and buy some time for Warsh to reflect,” analysts point out. The Fed chairman himself avoided making forecasts at the central bankers' forum in Sintra, limiting himself to saying that there will be “a good debate” at the next Federal Open Market Committee (FOMC) meeting, scheduled for July 28 and 29.

The market still sees a possible hike in September

Despite Goldman Sachs' skepticism, the market consensus does not rule out a hike. According to futures rates, the probability of a rate increase in September slightly exceeds 50%. Most investors expect the Fed to implement a single hike this year before pausing the tightening cycle.

But Goldman Sachs disagrees. In its analysis, the firm argues that the weakness in employment and the moderation of underlying inflation diminish the need to tighten monetary policy. “The Fed will ultimately avoid rate hikes,” they conclude. For investors, this means that fixed-income assets could maintain their appeal, while equities could benefit from a stable rate environment.

The next key date will be the FOMC meeting at the end of July. Until then, markets will be attentive to any statements from Warsh or other Fed members. For now, uncertainty remains the dominant tone, although Goldman Sachs has made its position clear: no hikes in 2026.