Goldman Sachs: September Fed Rate Hike "Very Unlikely" as Inflation Eases
In brief
- Goldman Sachs labels September Fed rate hike "very unlikely" amid soft economic data and easing inflation.
- Traders price just 30.6% probability of 25 basis point increase to 3.75%–4% in September.
- Bitcoin remains range-bound at $62,000–$66,000, currently trading near $63,500.
Soft Data Shifts the Odds
Goldman Sachs lowered the odds of a September rate increase in response to a string of soft economic data, specifically retail sales, employment figures, and slowing inflation. The bank's reassessment reflects a broader market pivot away from aggressive tightening expectations.
Market pricing has already adjusted downward. Traders are pricing in just a 30.6% chance that the Fed will raise its benchmark interest rate by 25 basis points to the 3.75%–4% range, a significant decline from earlier expectations.
"Under our baseline economic forecasts, the inflation news is more likely to improve further than to deteriorate anew as the year progresses" — Jan Hatzius, Chief Economist at Goldman Sachs
Bitcoin's Tight Trading Range
Bitcoin has traded in a narrow range since early July, with the price remaining firmly locked within the $62,000–$66,000 range for over a month. The cryptocurrency is currently priced around $63,500.
Interest rate increases are traditionally bearish for risk-on assets such as bitcoin, a dynamic clearly visible during the aggressive Fed tightening cycle of recent years. Rate cuts are viewed as bullish, echoing the crypto rally that followed the March 2020 Covid crash.
Goldman Sachs believes market pricing for the funds rate is too hawkish, suggesting further downside risk to rate-hike expectations could be in store. For bitcoin holders, a lower-for-longer rate environment would remove a key headwind that's kept the asset range-bound in recent weeks.
Frequently asked questions
Why does a lower Fed rate help bitcoin?
Interest rate increases are traditionally bearish for risk-on assets like bitcoin, while rate cuts are bullish. Lower rates reduce the opportunity cost of holding non-yielding assets and tend to increase investor appetite for riskier investments.
What economic data prompted Goldman's reassessment?
Goldman Sachs lowered rate-hike odds in response to soft economic data including weak retail sales, employment figures, and slowing inflation. These indicators suggest less need for aggressive Fed tightening.
