Goldman’s view pushes back against a simple read-through from August’s jobs strength to a September hike, framing next week’s CPI print as the real swing factor for the Fed decision. If Goldman’s benign inflation call proves right, that argues against the further upside in short-term US rates that stronger jobs data alone might suggest, a dynamic with direct implications for the US dollar and, by extension, AUD/USD. Goldman’s framing of the current inflation overshoot as driven by fading special factors, tariffs, energy prices and nonmarket costs, also matters for how durable any near-term inflation surprise is judged to be, shaping how much weight markets place on a single CPI print heading into the meeting.
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Goldman Sachs says the jobs data clears one hurdle to a Fed hike in September, but it’s next week’s inflation print, not payrolls, that will actually decide the outcome.
Summary:
- Goldman Sachs describes the August employment report as consistent with a solid but not overheating labor market
- Payroll employment rose by more than expected in August, with June and July job growth revised higher
- The unemployment rate held flat near the Fed’s estimate of full employment
- Wages and unit labor costs are growing at or below levels consistent with 2% inflation
- Goldman says healthy jobs data removes an obstacle to a September hike, but expects upcoming inflation data to matter more for the Fed’s decision
- The bank expects a benign CPI report this week, in line with its forecast, to be enough for the Fed to hold rates steady in September
Goldman Sachs says the August employment report was consistent with a solid labor market, but not an overheating one, arguing that next week’s inflation data will carry more weight than payrolls in shaping the Federal Reserve’s September decision. Payroll employment increased by more than expected in August, the bank noted, while job growth in June and July was revised higher.
Despite the stronger headline print, Goldman pointed to signs the labor market is not running hot enough to force the Fed’s hand. The unemployment rate held flat near the central bank’s own estimate of full employment, while both wages and unit labor costs are growing at or below levels consistent with the Fed’s 2% inflation target. Taken together, the bank views the report as removing one obstacle to a rate increase at the September meeting, without making that outcome the base case.
Goldman argues the more decisive input will be next week’s inflation data rather than Friday’s jobs numbers. The bank frames the current overshoot of the Fed’s inflation target as largely driven by special factors it expects to fade over the coming year, including tariff effects, higher energy prices, and nonmarket price pressures such as portfolio management fees. With the fed funds rate already sitting in what Goldman characterises as the zone of neutrality, the bank expects a benign CPI report next week, in line with its own forecast, to be sufficient for the Fed to hold rates steady in September rather than move.
The distinction Goldman draws, between a jobs report that removes an obstacle and an inflation report that actually decides the outcome, underscores how much of the September call now rests on a single data point still to come. If next week’s CPI print surprises to the upside, Goldman’s own framework suggests that could reopen the case for a hike that Friday’s employment data alone did not settle.
This article was written by Eamonn Sheridan at investinglive.com.