Is Market Fear Fake?...Goldman Sachs Puts Brakes on Fed's Additional Rate Hike Argument

▲ US Dollar (USD), U.S. Federal Reserve (Fed), Interest Rate Hike/AI Generated Image

An analysis from a leading Wall Street investment bank suggests that the financial market's fear surrounding the U.S. Federal Reserve's (Fed) monetary policy tightening stance is excessive.

According to crypto-focused media outlet Coingape on September 24 (local time), global investment bank Goldman Sachs (GS) diagnosed that the market's expectation of additional Fed rate hikes is overly hawkish compared to actual economic conditions. Rob Kaplan, Vice Chairman of Goldman Sachs and former President of the Federal Reserve Bank of Dallas, explained in a podcast interview that the market is reflecting an excessive tightening premium after the September rate hike, and a rate freeze in October is highly probable.

Vice Chairman Kaplan pointed out the structural limitation that the ripple effect of the Fed's benchmark interest rate hikes does not spread evenly across the entire economy. Currently, investments in AI infrastructure and defense spending, which drive U.S. economic growth, are financed through long-term rates via debt and equity, and thus are not directly impacted by short-term benchmark rate changes. Conversely, the impact of benchmark rate hikes is concentrated only in certain interest-rate-sensitive areas such as housing, automobiles, small and medium-sized enterprises, and middle-to-lower income households, already exerting pressure for an economic slowdown.

The rise in long-term bond yields in the bond market was also cited as a factor reducing the need for further rate hikes. With 10-year U.S. Treasury yields exceeding 5% annually, proactively reflecting the impact of widening fiscal deficits and oil price shocks, the long-term bond market is already performing the actual tightening effect, according to Kaplan. Vice Chairman Kaplan noted that while the Fed's dot plot indicated further hikes, “the market is reflecting far more tightening than the economy can actually handle.”

He suggested that skipping the October rate decision, observing inflation trends, and then finally raising rates by 0.25 percentage points in December is the best path to reach the neutral interest rate level of 4.00% to 4.25%. As concerns about excessive rate hikes gradually ease, market attention is focused on whether the risk asset market, including Bitcoin (BTC), can also lay the groundwork for a relief rally.

[Article Key Summary]

-Goldman Sachs analyzed that the financial market's expectation of additional Fed rate hikes is excessively high compared to actual macroeconomic conditions.

-While AI infrastructure investments and defense spending are outside the influence of short-term interest rates, sensitive sectors such as housing and small and medium-sized businesses are already severely impacted.

-With 10-year Treasury yields exceeding 5% and the long-term market having completed its own tightening, the possibility of an interest rate freeze in October gains weight.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*