Goldman Sachs Sees Fed Near End of Rate Hike Cycle as Fear Gauge Retreats

• Goldman Sachs economists see the Federal Reserve approaching the terminal rate in its hiking cycle
• Declining VIX fear gauge reflects market consensus building around a soft-landing scenario
• GS equity strategists raising year-end S&P 500 price targets as rates-peak thesis gains traction

Goldman Sachs' call that the Federal Reserve is approaching the end of its rate hike cycle carries significant market weight given the firm's track record of macro forecasting. The bank's economists point to a convergence of signals: core PCE is decelerating on a three-month annualised basis, the labour market is cooling gradually rather than crashing, and bank lending standards have tightened sufficiently to substitute for additional Fed hikes. Goldman's baseline now assumes one more 25-basis-point increase followed by an extended pause before cuts begin in mid-2027.

The retreat in the VIX — which measures equity market implied volatility and is widely used as a fear gauge — is corroborating the soft-landing narrative in real time. At levels below 15, the VIX is signalling that institutional investors are not pricing significant near-term equity drawdown risk. This environment historically corresponds to the late stages of hiking cycles, where rate uncertainty has been resolved and equity markets begin pricing the recovery in earnings multiples that typically follows peak rates. Goldman's equity team has raised its S&P 500 year-end target in response.

Counterarguments to the soft-landing thesis deserve attention. Commercial real estate distress is ongoing, regional bank balance sheets remain stressed, and the cumulative impact of rate hikes on adjustable-rate consumer debt has not fully propagated. Goldman itself acknowledges a 20% recession probability over the next 12 months — elevated by historical standards even in the optimistic scenario. For investors, the risk is that equity markets are pricing perfection in a soft landing while the macro data still holds genuine tail risk. A single upside inflation print could reignite rate-hike expectations.

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