Goldman Sachs: The Fed's July Inaction Was Correct; It Should Remain Open Ahead of September

Goldman Sachs analyst Robert Kaplan said the Federal Reserve’s decision not to raise rates in July was “absolutely” correct, urging policymakers to maintain flexibility until September, citing the complex factors influencing inflation and warning that rigid forward guidance could be counterproductive. Kaplan stated, “If I see meaningful improvement, I may be willing to hold steady, but I want to use every moment before September to make a judgment, avoiding rigidity or preconceptions.” Kaplan identified current influencing forces as including inflationary pressures from AI infrastructure construction, tariffs, labor constraints, and surging oil prices; meanwhile, AI applications are exerting a countervailing effect, accelerating the downward trend in inflation. He said the Fed should use its speech at this month’s Jackson Hole symposium to briefly explain the rationale for its July hold, rather than delivering a purely “philosophical” address. Kaplan expressed greater concern about long-term U.S. Treasury yields than about the federal funds rate itself, noting that the global rebound in long-term bond yields reflects structural supply-demand imbalances driven by persistent fiscal deficits, not Federal Reserve policy. (Jinshi)