• July CPI came in line with expectations, with core inflation showing continued moderation.
  • Goldman Sachs Asset Management views the print as supportive of a Fed hold in September.
  • A further inflation report before the FOMC meeting leaves the outlook fluid.

Goldman Sachs Asset Management called July’s consumer price index “encouraging,” saying contained core inflation strengthens the case for the Federal Reserve to hold interest rates steady at its September meeting. Lindsay Rosner, head of multi-sector fixed income investing, noted that the report adds to signs that underlying price pressures are easing, but she cautioned that another inflation reading is due before the policy decision, meaning the trajectory could still shift.

The in-line CPI print supports a Fed pause, according to Rosner. Markets had been bracing for a potential surprise after a string of hotter-than-expected data earlier this year, but the latest figures appear to validate the disinflationary trend. Core CPI, which excludes food and energy, rose at a pace consistent with the Fed’s 2% target, easing concerns that price pressures were reaccelerating.

“While the headline was in line, the details were even more positive, with shelter costs finally showing meaningful deceleration,” said a senior economist at a major asset manager, who asked not to be named because they aren’t authorized to speak publicly. “This gives the Fed room to remain patient and keep rates higher for longer without tightening further.”

Treasury yields slipped after the release, with the 2-year note falling five basis points to 3.86%, while stock futures pared losses. Rate futures now imply a near-certain probability of no change at the September 20 meeting, with a small chance of a cut priced for December. The dollar weakened modestly against a basket of major currencies.

The Fed has maintained a data-dependent stance, and officials have repeatedly emphasized that they need to see a sustained cooling in inflation before easing policy. The July CPI report provides some of that evidence, but the upcoming August CPI report, to be released just a week before the FOMC gathering, remains a key risk. A significant upside surprise could revive hawkish bets, while another benign print would solidify the case for a prolonged pause.

Beyond the near-term policy outlook, the inflation data have broader implications for risk assets. A Fed that is able to hold steady without hiking could support equities and corporate credit, as investors are gradually pricing in a soft landing scenario. However, if price pressures reappear, the repricing could be swift, catching leveraged markets off guard.

The July CPI report is the latest input in a complex picture, with the Fed balancing resilient growth, a strong labor market, and lingering price uncertainty. For now, Goldman’s Rosner is in the camp that the data support patience, but she acknowledged that the next report will be crucial. “We’re not out of the woods yet, but this is a step in the right direction,” she said in an interview. “The base case is still a hold in September.”