Global Views Lower Inflation, Limited Hikes

Economics Research 22 September 2026 | 6:27AM EDT

Global Views: Lower Inflation, Limited Hikes

1. We see three fundamental reasons for the Fed’s hawkish turn, which has upended Jan Hatzius | our prior forecast of no hikes this year. First, renewed escalation risks in the Middle Goldman Sachs & Co. LLC

East have driven up the prices of crude oil and especially refined products, with diesel and jet fuel back to the 2022 highs. Second, the activity news has beaten expectations, with real GDP growth tracking 3.3% in Q3 and nonfarm payrolls rising 162k in August. Third, the August CPI and PPI data suggest that core PCE rose 0.27% last month, somewhat above pre-CPI expectations.

Exhibit 1: Oil Product Prices Have Surged Since July

Source: EIA, Haver Analytics, Goldman Sachs Global Investment Research

2. The news should turn less hawkish over the next several months. Our commodity strategists point out that overall oil exports from the Middle East have recovered to nearly 80% of prewar volumes despite the partial closure of the Strait of Hormuz and disruptions in the Red Sea. Moreover, China has again curtailed its imports since early August given higher prices, helping stabilize the demand-supply balance in the global oil market. Thus, our strategists project a gradual decline in Brent prices to $85/barrel by December. But product prices are likely to remain elevated given the shortage of refining capacity, and we still worry about renewed escalation that destroys more energy infrastructure.

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Exhibit 2: Disruption vs. Adaptation in the Middle East

Source: Kpler, Goldman Sachs Global Investment Research

3. While the quarterly numbers fluctuate, underlying US GDP growth remains near its 2.3% potential and thus consistent with a stable labor market. The US economy is bifurcated, with strength among upper-income consumers and AI-exposed sectors— including firms that benefit from the data center buildout—but slow growth elsewhere. The weakness is particularly visible in residential investment, which is contracting on the back of weak demographics and higher mortgage rates. And despite the stronger-than-expected August retail sales report, we still expect consumer spending to soften because of slow nominal wage growth, higher gas prices, and the waning tax refund boost.

Exhibit 3: Pressure on US Housing and Consumption

Percent, year ago Adjusted Income Forecasts* Percent, year ago 3.0 3.0 Real Disposable Personal Income 2.5 2.5 Real Disposable Personal Cash Flow**

-1.0 -1.0 Jun-25 Sep-25 Dec-25 Mar-26 Jun-26 Sep-26 Dec-26 * Both series adjusted for AI-related mismeasurement **Real DPI with taxes converted from accrual to cash.

Source: National Association of Home Builders, Haver Analytics, Goldman Sachs Global Investment Research

4. Despite the sequential pickup in August, we estimate that core PCE inflation has slowed to a 2.5% annualized pace over the last three months (including the impact of the likely revisions). This slowdown mostly reflects the waning impulses from tariff pass-through, energy pass-through, software/accessories price hikes, and portfolio