Goldman Sachs on FOMC Rate Decision - FJElite

The run-up to today’s July FOMC meeting was unusually dramatic, with markets pricing the most uncertainty about whether or not the FOMC would hike in three decades. But the meeting ended with no change to the funds rate, no substantive changes to the statement, and no policy guidance or explanation of the FOMC’s interpretation of the inflation situation during the press conference. Presidents Hammack, Kashkari, and Logan dissented in favor of a rate hike.

Chairman Warsh made several dovish comments during his press conference. First, he appeared to downplay Al-related price pressures. Second, asked if the recent rise in interest rates was a signal that the market thought the Fed should hike, he connected it instead to the recent strength of the economy. Third, he hinted that the rise in market interest rates could substitute for a rate hike, though without saying so explicitly. Fourth, asked if the Fed needed to raise interest rates to lower inflation by reducing demand, he suggested that more credibly committing to the inflation target could help to lower inflation by lowering inflation expectations.

The bond market also took today’s meeting as dovish. Near-term interest rates were lower on the day despite an increase in energy prices, while long-term interest rates rose during the meeting, led by a rise in breakeven inflation compensation. The bond market is now pricing a 60% chance of a rate hike at the next FOMC meeting in September. We continue to expect that softer core inflation in coming months will keep the Fed on hold for the remainder of 2026.