Goldman Sachs: Market Expectations for Fed Rate Hikes Are Too Aggressive

Goldman Sachs has stated that market expectations for Federal Reserve rate hikes remain overly aggressive, as inflation in the U.S. is cooling down. Jan Hatzius, the chief economist at Goldman Sachs, pointed out in a report that weak retail sales data, disappointing employment figures, and a continued slowdown in inflation data make the likelihood of a rate hike at the Fed's September meeting "extremely low." Hatzius believes that over time, the chances of further improvement in inflation data are greater than the chances of deterioration, indicating that the market's pricing of the federal funds rate is too hawkish. Data shows that the market has pushed back expectations for the next 25 basis point rate hike by the Fed to January of next year, whereas just a week ago, the market fully expected the Fed to raise rates in December. Goldman Sachs believes that although market pricing is no longer as hawkish, there is still room for further easing of rate hike expectations.

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