Goldman Sachs expects the Federal Reserve to keep interest rates unchanged for the remainder of 2026, pushing back against markets that increasingly see a September hike after three policymakers broke with the majority. The call implies that softer underlying inflation will ultimately outweigh the Fed's most hawkish vote in years.

The Federal Open Market Committee voted 9-3 Wednesday to maintain its benchmark rate at 3.50% to 3.75%. Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan instead supported a 25-basis-point increase. The Fed said economic activity remained solid but acknowledged that inflation was still elevated relative to its 2% target.

Goldman interprets Chair Kevin Warsh's post-meeting remarks as less hawkish than the dissent count suggests. The bank believes rising market interest rates are already tightening financial conditions, reducing the urgency for an official increase. It also expects monthly core inflation to soften sufficiently for officials to tolerate above-target annual readings.

Fresh data released Thursday offered support for that argument. Core personal-consumption-expenditures inflation slowed to 0.1% month over month in June from 0.3% in May, although it remained elevated at 3.3% annually. Headline PCE prices declined 0.1% from May.

The growth picture is less decisive. Second-quarter GDP expanded at a 1.5% annual rate, slowing from 2.1%, but private domestic demand accelerated to 3.9%. That combination gives the Fed evidence of easing headline growth without confirming that demand is weak enough to eliminate inflation risk.

Investor Takeaway

Markets still assign roughly a 57% probability to a September increase, compared with about 36% before Wednesday's decision. That gap makes incoming data unusually important for Treasury and equity volatility.

Investors should monitor the July employment report on August 7, followed by July PCE inflation on August 26, before the Fed's September 15-16 meeting.

Another soft core-inflation reading would strengthen Goldman's hold call and support shorter-duration bonds and rate-sensitive stocks. Strong hiring, rising oil prices or renewed monthly inflation would validate market expectations for a hike and place further pressure on long-duration Treasuries, housing and richly valued growth stocks.