Goldman Sachs: Fed Hikes Unnecessary Despite Jobs Report

The September jobs report delivered a weaker-than-expected performance, indicating a cooling trend in the labor market.

The unemployment rate experienced an uptick, rising to 4.2%, which prompted a market response where yields moved lower and stock prices increased.

Goldman Sachs has adjusted its forecast, pushing back the expected final move from the Federal Reserve from October to December.

Jan Hatzius expressed his view that the economy does not necessitate a significant number of additional interest rate hikes from this point, despite the market still pricing in three more hikes.

A December rate hike remains the current base case expectation for the Federal Reserve's next monetary policy decision.

However, Hatzius noted the possibility that the Fed could forego a hike if incoming economic data consistently remains favorable, potentially resulting in a 'one-and-done' hike, a rare but possible outcome for central banks.

The Consumer Price Index (CPI) data released before the Federal Reserve's October meeting is identified as a critical indicator for future policy decisions, holding more importance than recent employment figures.

A CPI reading of 0.2% or slightly higher would bolster the argument against an interest rate hike in October, and a consistent trend of soft inflation numbers could potentially avert a December hike as well.

When the strong performance of equities is excluded from the analysis, financial conditions appear significantly tighter, resembling levels observed in early 2025.

The substantial rise in long-term interest rates has been a primary contributor to this tightening, though current financial conditions present only a minor impediment to overall economic growth.