Goldman Sachs: US and European rate hikes may slow, while US household demand for equities remains supported in 2027
Goldman Sachs expects the Federal Reserve and the European Central Bank to pause rate hikes this week and raise rates again in December. US household demand for equities will remain robust in 2027, but depends on employment, wealth, and competition from cash and bond yields.
Original source：Goldman SachsFirst published on Unhidea：Original source date：
Key takeaway
Goldman Sachs’s baseline view is that the pace of US and European rate hikes will slow and US household demand for equities will continue, but inflation will determine where rate hikes end, while employment and interest rates will determine the durability of equity demand.
US and European rate hikes pause this week: How far from the end of this cycle?
Goldman Sachs expects the Fed to hold rates steady at its meeting this week and raise them again in December, which it believes should be enough to end the current tightening cycle. Between a slower pace and the end of rate hikes lies one more expected move.
Inflation is the key condition for this path: if data come in above Goldman Sachs’s expectations, the Fed could still raise rates again in March 2027. The bank has the same view of the ECB: no hike this week, a hike in December, and further action in March only if inflation exceeds its forecast.
In Europe, divergence in sovereign bond markets also warrants attention. Goldman Sachs believes ECB intervention in bond markets would require a significant intensification of sovereign debt stress and its spread more broadly; current rate divergence remains some way short of that threshold.
Why can households keep buying US equities?
Goldman Sachs expects US household demand for equities to remain robust in 2027. Its assessment rests on employment, household wealth, and the competitiveness of cash and bond yields relative to equities: households’ ability to buy equities and willingness to hold them are both linked to these variables.
A longer-term source of support is the shift in retirement asset allocation toward equities. But interest rates and structural shocks from AI are also major uncertainties, while recent macroeconomic volatility suggests that the baseline scenario of robust demand remains sensitive to the economic environment.
Will other central banks and European fiscal policy move in the same direction?
Monetary policies are not moving in lockstep. Goldman Sachs expects the Bank of Japan to stand pat this week, with attention focused on its views on the yen, financial conditions, inflation and the neutral rate. The Bank of Canada, meanwhile, is expected to raise rates by 25 basis points this Wednesday and by another 25 basis points in January 2027, taking its policy rate to the midpoint of its 2.25%–3.25% neutral range.
European fiscal policy is expected to turn expansionary. Goldman Sachs believes German government spending will be the most forceful over the coming year; as elections approach in France, Italy and Spain, fiscal expansion may also extend to those countries.
Which events are most likely to change the assessment this week?
The Fed meeting on Wednesday will test expectations of a pause in rate hikes; the preliminary third-quarter GDP reading and core PCE inflation data due Thursday will provide new information on economic growth and the inflation path, respectively. The durable goods report is also due Tuesday.
Corporate earnings are also entering a busy reporting period: about 180 S&P 500 constituents will report results this week, including Amazon, Alphabet and Microsoft. Assessments of macroeconomic interest rates and information on corporate performance will be updated in the same week.
