Goldman Trading Desk Warns: The Fed May Be Forced to Hike Rates Even as Data Softens
Nashnova编辑部
The 30-year U.S. Treasury yield hit 5.325%, the highest since 2007; Goldman's trading desk and its chief economist are publicly split — the desk warns the Fed may be forced to raise rates during an economic slowdown, because long-end bonds face a supply problem, not a data problem.
What are they fighting about inside Goldman?
Trading-desk head Rich Privorotsky wrote in an internal memo: rate rises increasingly look like a supply issue, not a central-bank discipline issue. This means → too much debt issuance, not enough buyers — rates are being pushed up by "paper," regardless of where the economy is heading.
Chief economist Jan Hatzius holds the opposite view: real consumption growth will slow to 1%–1.5% in H2, job gains are trending around 5,000 per month, a September hike is "extremely unlikely," and the market is pricing the fed-funds rate too hawkishly.
In plain terms = the same bank's trading desk says "may be forced to hike" while its economist says "extremely unlikely to hike" — a rare public split.
How big is the supply pressure?
Goldman credit strategist Amanda Lynam provided the numbers: AI-related debt supply has already reached $489 billion year-to-date, versus a full-year forecast of just $322 billion — blown past before mid-year.
USD investment-grade bond issuance has topped $1.5 trillion, on track to break the pandemic-era record; the full-year $2.1 trillion forecast carries "skewed upside risk."
This means → sovereign deficits plus potentially over $1 trillion per year in AI capex are all being financed through debt markets — supply is running far above expectations, and real rates must rise high enough to clear it.
Where are the weakest links globally?
France: high debt, rising interest costs, and no political appetite for fiscal restraint ahead of 2027 elections — all three coexist, straining debt sustainability.
Japan: the 10-year JGB yield has climbed to roughly 2.94%, a thirty-year high. Growth, currency stability, expansionary fiscal policy, and a stable bond curve are increasingly mutually exclusive; the market is accelerating its pricing of BOJ tightening.
This reflects a problem that is not unique to the U.S. — sovereign debt supply is expanding simultaneously worldwide, with long-end rates in different countries transmitting pressure to and reinforcing each other.
Could the Fed's reaction function be rewritten?
Privorotsky's core argument: when supply pressure is large enough, softening data no longer automatically means lower yields. In plain terms = the old playbook — weak economy → rate cuts → yields fall — may be broken.
He goes further: the Fed could be forced to hike even during a slowdown, not to fight inflation but to flatten the yield curve and re-anchor the long end.
This means → if this call is right, the "bad data = easing" trading template the market has relied on for decades would stop working.
Who gets crowded out?
Privorotsky notes: if equities try to force spending cuts, the adjustment pressure falls mostly on the private sector — governments rarely choose fiscal austerity voluntarily.
This means → high real rates + massive government and AI-capital financing needs = crowding out of other sectors, which may already be showing up in broader-market valuation compression.
What to watch next?
The key question: can the Fed's July meeting minutes provide a clear reaction function? Privorotsky said explicitly he wants to see "a coherent reaction function, not another piece of writing that leaves everyone confused."
If the minutes remain vague, the pricing power over long-end rates will shift further away from the Fed and toward supply logic — how much debt is being issued, and who is buying it, will matter more than economic data.
Content is for reference only, not financial advice.