USD Rates Outlook: Goldman Sachs Expects Fed to Stay on Hold Through 2026

The US dollar held recent gains after the Federal Reserve chair indicated inflation risks have eased and policymakers are reviewing how they communicate future rate decisions. Goldman Sachs expects the central bank to leave interest rates unchanged through 2026, a view that reinforces the dollar's yield advantage over currencies from economies where rate cuts are expected.

The dollar's strength has been a persistent theme as the Fed stays on hold while the European Central Bank and Bank of England have signaled easing. If the Fed maintains its current stance through next year, the dollar could remain supported, particularly against the euro and sterling. The yield differential between US and German 10-year bonds has widened, a factor that analysts say supports the dollar.

The comment that the Fed is reviewing its forward guidance framework adds another layer. Markets have been conditioned to expect clear signals from the Fed on the rate path. A shift in communication style could introduce uncertainty, which might initially boost the dollar as a safe haven, traders said.

Goldman Sachs' forecast of no rate changes through 2026 is among the more hawkish on Wall Street. Most economists expect the first cut in late 2025 or early 2026. If the data continues to show sticky inflation, the market may have to price out those cuts, providing further dollar support.

The next major test for the dollar will be the January CPI report and the Fed's March meeting, where the dot plot will be updated. Until then, the dollar is likely to trade in a range, with the DXY index holding above recent support levels.