Fed rate hike odds fall as Goldman Sachs warns markets are too hawkish

Odds of a Federal Reserve rate hike in September and later in 2026 are falling as softer economic data and cooling inflation reduce expectations for tighter monetary policy. Goldman Sachs now says a September hike has become “very unlikely,” while Bitcoin and US stock futures are gaining.

Fed rate hike odds fall as Goldman Sachs pushes back on hawkish bets

Goldman Sachs has argued that markets are still pricing in a more hawkish Federal Reserve than the current economic data warrants.

The bank pointed to softer retail sales, a slowing labor market and cooling inflation as reasons why the chances of another rate increase have declined.

Goldman Sachs chief economist Jan Hatzius said the inflation outlook is more likely to improve than worsen as 2026 progresses. Based on its current economic forecasts, the bank expects the Fed to keep its federal funds target range at 3.50%-3.75% through the rest of 2026.

Under this outlook, rate cuts would be pushed into 2027 rather than happening later this year.

Market expectations have also shifted. Traders had been pricing in a 25-basis-point Fed rate hike by December as recently as last week. That expectation has now moved toward January 2027.

According to the CME FedWatch Tool, markets currently price roughly a 30% probability of a 25-basis-point hike in September, while the probability of the Fed keeping rates unchanged is close to 70%.

Prediction markets are also becoming less convinced that the Fed will raise rates again this year. Polymarket data cited in the source shows No bets at 53% versus 47% for Yes on at least one 2026 rate hike.

Why lower rate hike expectations matter for Bitcoin

Expectations for Fed policy can have a major influence on risk assets such as Bitcoin.

When investors expect interest rates to remain high for longer, Treasury yields can stay elevated and liquidity conditions can become less supportive for riskier assets. A reduction in rate-hike expectations can have the opposite effect by easing pressure on financial markets.

The two-year US Treasury yield has slipped toward 4.12%, while the 10-year yield has fallen to around 4.676%.

The US Dollar Index has also declined, dropping 0.31% to 99.36, according to the information provided.

The combination of lower Treasury yields, a weaker dollar and reduced expectations for additional Fed tightening has helped support the broader risk-on move.

Bitcoin price rebounds as markets reassess Fed policy

Bitcoin is responding positively to the shift in monetary policy expectations.

BTC climbed more than 1% to around $63,503, with a 24-hour low of $62,666 and a high of $63,641. Trading volume also increased by more than 47% over the previous 24 hours.

The move comes as traders await the release of the Federal Open Market Committee (FOMC) minutes, which could provide additional clues about how Fed officials view inflation, employment and future interest-rate decisions.

Our recent crypto market update on August 16 highlighted how Bitcoin, Ethereum and XRP were trading in narrow ranges as markets waited for the minutes and other major August 19 catalysts. 

The minutes could be particularly important if they reveal whether policymakers remain concerned enough about inflation to consider another hike or whether the recent cooling in price pressures is changing the discussion.

Goldman Sachs sees more room for hawkish expectations to unwind

Goldman Sachs believes markets could continue reducing their expectations for additional rate hikes.

Hatzius argued that after two months of weaker jobs and inflation data, it is difficult to see Fed officials moving toward a rate-hike position.

That does not mean rate cuts are immediately on the table.

Goldman Sachs still expects the Fed to maintain its current target range throughout 2026, meaning the key change is the removal of additional tightening expectations, rather than a shift toward immediate monetary easing.

For Bitcoin, that distinction matters. A Fed pause can still provide some relief to risk assets if markets had previously been positioned for further tightening.

What to watch next

The next major catalyst is the release of the FOMC minutes, followed by upcoming inflation and labor-market data.

If inflation continues to cool while employment conditions weaken, expectations for another Fed hike could decline further. That could provide additional support for Bitcoin and other risk assets.

However, a renewed inflation acceleration could quickly reverse those expectations and bring the possibility of another rate increase back into focus.

For now, the balance appears to be shifting away from a more hawkish Fed. With Bitcoin already bouncing alongside lower yields and a weaker dollar, traders will be watching the FOMC minutes closely for confirmation of that trend.