Goldman Sachs: Fed to hold rates steady through end of 2026

Goldman Sachs has forecast that the US Federal Reserve will keep interest rates unchanged through the end of 2026, contradicting market bets that price in a roughly 55% probability of a rate hike at the September meeting, following the Federal Open Market Committee’s decision to hold rates steady.

David Mericle, chief US economist at Goldman Sachs Research, stated that improving core inflation data in June supports the Fed’s continued cautious approach, adding that the bank sees no justification for raising interest rates in the remaining months of the year.

The report noted that comments by Federal Reserve Chair Jerome Powell after the meeting struck a less hawkish tone, as he argued that price pressures associated with artificial intelligence (AI) do not reflect a broad inflation trend. He also linked higher real interest rates to the strength of the US economy, suggesting that rising bond yields could play a role similar to monetary tightening.

Markets also interpreted the meeting’s outcomes as leaning toward easing, with short-term interest rates falling despite rising energy prices, while long-term yields increased.

Goldman Sachs warned that the boom in capital spending on AI and rising inflation volatility present new challenges for investment portfolios. It recommended increasing exposure to real assets such as gold, infrastructure, and real estate, alongside geographic diversification, expansion into alternative assets, and the use of hedging instruments to mitigate risks.

The bank noted that growing demand for critical minerals and rare earth elements, driven by growth in AI, electric vehicles, and clean energy, has accelerated mergers, acquisitions, initial public offerings, and fundraising in the sector.

Mining companies are racing to secure supplies of copper and rare metals, while rare earth element firms are adopting vertical integration strategies to increase value-added and reduce reliance on global supply chains. Meanwhile, governments, particularly the United States, are expanding their role in financing these projects through subsidized financing instruments and direct investments.