Goldman's Hatzius sees no Fed rate hike in 2026 as CPI looms

Goldman Sachs chief economist Jan Hatzius expects the Federal Reserve to hold rates through 2026, betting that cooling inflation outweighs a stalled labor market.

Goldman Sachs chief economist Jan Hatzius does not expect the Federal Reserve to raise interest rates this year, betting that cooling inflation will keep policy on hold even as futures markets price a near coin-flip chance of tightening at the September meeting.

"I don't think we will see hikes in the latter part of this year," Hatzius said on Fox Business's "The Claman Countdown" on Aug. 11. "I think rates are going to stay on hold."

The call runs against CME Group's FedWatch tool, which on Monday showed roughly 50 percent odds of a rate increase for the Sept. 16 meeting and 63 percent for October, after July nonfarm payrolls fell by 23,000 against a consensus for a gain of 83,000. Hatzius said inflation data now matters more than employment figures for the policy path, a view that the July CPI report due Wednesday at 8:30 a.m. ET will test.

The stakes are high for risk assets. The S&P 500 has rallied more than 13 percent in 2026 to record highs, and a hotter-than-expected CPI print would revive September hike bets, lifting Treasury yields and punishing growth stocks, while a soft reading would strengthen the case for patience.

The July CPI report is expected to show headline inflation easing to 3.4 percent year over year from 3.5 percent in June, with core CPI cooling to 2.5 percent from 2.6 percent, according to consensus forecasts. On a monthly basis, headline prices are seen rising 0.1 percent after June's 0.4 percent decline — the first drop since April 2020 — while core is expected to gain 0.2 percent after flatlining.

Energy is the swing factor. Oil prices surged more than 20 percent in July as U.S.-Iran peace talks collapsed, pushing West Texas Intermediate futures back above $80 a barrel. Pantheon Macroeconomics expects energy goods prices to fall 2.6 percent month over month in July, subtracting about 11 basis points from the headline rate, but the rebound in crude threatens to reverse that drag in coming months.

Goldman's own forecast is more sanguine. Ashok Varadhan, the firm's co-head of global banking and markets, said oil will settle "well below $70 a barrel" by the latter part of the year as geopolitical risk premiums fade and tariff impacts recede. He also argued that artificial intelligence will ultimately act as a disinflationary force once the infrastructure buildout matures, supporting economic resilience and keeping credit spreads and default rates low.

A Coin-Flip September

The Fed's reaction function is the crux. Recent commentary has leaned hawkish, with July dissents from Kashkari, Hammack and Logan, while non-voters Schmid and Musalem said they would have preferred a hike. Chair Warsh, however, has acknowledged that tighter financial conditions are doing some of the Fed's work, tempering expectations for near-term tightening. The September decision remains highly data-dependent: following Wednesday's CPI, policymakers will still receive the August jobs report, August CPI and August PPI before the Sept. 16 meeting. Goldman's David Mericle has replaced 2026 cuts with quarter-point reductions penciled in for June and December 2027, while doubling the estimated probability of a modest hike to 20 percent.

What a Hot or Cold Print Means

A hotter-than-expected core reading would likely revive September hike expectations, particularly given the hawkish Fed commentary and renewed energy pressure, strengthening the dollar and pressuring gold. Conversely, another soft core print would strengthen the case for patience after the payrolls deterioration, supporting tech stocks and pushing gold toward the $4,500 mark. The last time the Fed faced a similar inflation-versus-labor tradeoff was in 2023, when a string of soft CPI prints preceded a prolonged pause that lifted the S&P 500 more than 20 percent over the following year.

This article is for informational purposes only and does not constitute investment advice.