Goldman Sachs is pushing back against the market's recent hawkish repricing, arguing that the odds of a September rate hike are overblown and that the Federal Reserve's default position remains inaction. The firm's chief economist, Jan Hatzius, acknowledges that Kevin Warsh's speech at Jackson Hole was his most hawkish appearance since taking the helm, but he contends that a mere shift in tone is unlikely to be sufficient to trigger a move next month.

In a note to clients, Hatzius highlighted that Warsh has made it clear his primary concern is ensuring underlying inflation falls noticeably and quickly enough toward the Fed's 2% target, with a warning that more work lies ahead if it fails to do so. According to Hatzius, Warsh also directly addressed the recent run of encouraging inflation data, conceding that this summer's PCE and CPI readings beat expectations, while simultaneously arguing that these figures do not yet signal a substantial improvement in the underlying price trend.

This rhetoric, Hatzius writes, leaves the door open for a September hike, but only if upcoming August CPI and PPI reports surprise to the upside. Goldman's own forecasts suggest that threshold will not be breached. The bank continues to expect core CPI and core PCE inflation to land around 0.2% for August, a pace it believes is insufficient to justify the policy response implied by Warsh's language.

On this basis, Goldman's base case remains that the Federal Open Market Committee will hold rates steady at its September meeting. If Hatzius's prediction of roughly 0.2% growth in August core CPI and PCE proves correct, it would largely align with recent trend inflation, rather than the acceleration Warsh's comments seemed to signal. That could disappoint traders who, based on the speech alone, have pushed the probability of a hike to nearly 60%.

The report comes as markets reassess September action probabilities following Warsh's remarks, with rate futures showing a significant jump in implied odds after his Jackson Hole address. Goldman's analysis suggests that unless inflation data itself strengthens notably in the coming weeks, this repricing may prove premature, making the release of August CPI and PPI figures a more decisive factor for the September decision than Warsh's rhetoric alone.