Goldman Sachs: Global central banks have recently turned more hawkish, but rate forecasts remain dovish relative to market pricing

Overview

This report is Goldman Sachs' global central bank policy tracker, with core coverage of recent policy rate adjustments, forecasts for future rate paths, deviations relative to consensus and market pricing, drivers of policy rate forecasts, and developed market central bank balance sheet policies. The report notes that central bank actions have generally turned more hawkish recently due to the Iran war, but the financial conditions index has still eased materially over the past three months.

Core views

Goldman Sachs expects the global GDP-weighted central bank policy rate to decline by 0.1 percentage point to 3.1% over the next four quarters. Within developed markets, divergence is expected: New Zealand, the euro area, Sweden, Norway, and Japan are seen facing hikes or maintaining a tighter path, while the US and UK are expected to continue cutting rates. In emerging markets, an overall 33 basis point rate cut is expected, with CEEMEA seeing the largest cuts, Latin America modest cuts, and Asia slight hikes. Relative to market pricing, Goldman Sachs' end-2026 policy rate forecasts are dovish; relative to Bloomberg consensus, both developed and emerging markets are broadly balanced.

Analysis framework

The report uses a cross-economy policy rate panel to compare the latest policy rates, Goldman Sachs forecasts, Bloomberg consensus, and market pricing side by side, and explains forecast differences using growth, inflation, financial conditions indices, and central bank balance sheet metrics. Global indicators mainly use GDP-weighted averages, while regional dimensions distinguish developed markets, emerging markets, Latin America, CEEMEA, and Asia.

Methodology notes

• Macro policy trackingCentral bank policy rate tracking

  Compare the latest policy rates across economies with Goldman Sachs forecasts, Bloomberg consensus, and market pricing.

  This framework is used to identify how dovish, hawkish, or balanced Goldman Sachs forecasts are relative to market pricing or consensus expectations, and to track policy paths over the next four quarters and through end-2026/end-2027.

• Financial conditions analysisGoldman Sachs Financial Conditions Index

  Use changes in financial conditions to measure the overall degree of constraint from interest rates, market prices, and the financial environment on the economy.

  The report shows that the global financial conditions index eased by 24 basis points over the past three months, and lists Turkey, South Korea, and Romania among the largest easing moves, while Russia, Israel, and Brazil saw the largest tightening.

• Global macro forecastingGDP-weighted global policy rate forecast

  Aggregate policy rate forecasts across multiple economies using GDP weights.

  The report uses a GDP-weighted measure to assess the global policy rate path, expecting the global policy rate to decline by 0.1 percentage point to 3.1% over the next four quarters.

• Central bank balance sheet policyDeveloped market central bank balance sheet-to-GDP ratio

  Compare the size of central bank balance sheets relative to GDP and relative to 2019.

  This framework is used to assess quantitative tightening, reinvestment policy, reserve demand, and terminal balance sheet size, with the report specifically noting that New Zealand and Australia remain elevated relative to 2019.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Global sovereign bonds and rates markets

  Policy rate forecasts directly affect yield curves and the pricing of duration assets.

  Strengths

  If Goldman Sachs' dovish forecasts materialize, medium- to long-term rates in some markets may have room to decline.

  Weaknesses

  Recent central bank actions have been more hawkish, and inflation in some economies may still limit rate cuts.

  Comparison

  End-2026 forecasts are dovish relative to market pricing, but broadly balanced relative to Bloomberg consensus.

  Risks

  Geopolitical shocks, reaccelerating inflation, or more hawkish central bank communication could push yields higher.

• Emerging market local rates

  Emerging markets overall are expected to cut rates by 33 basis points over the next four quarters, with CEEMEA seeing the largest cuts.

  Strengths

  If inflation falls and financial conditions permit, some high-rate economies may have substantial room to cut.

  Weaknesses

  Cross-country divergence is significant, with Asia expected to see slight hikes rather than broad easing.

  Comparison

  Latin America is expected to see modest cuts, CEEMEA deeper cuts, and Asia overall more stable.

  Risks

  Currency depreciation, capital outflows, and food and energy price shocks may reduce room for easing.

• US dollar and major currencies

  Relative rate paths and deviations from market pricing will affect interest differentials and FX expectations.

  Strengths

  The US and UK are still expected to continue cutting rates, which may affect expectations for USD and GBP rate differentials.

  Weaknesses

  If Fed cuts are delayed or the market reprices a higher terminal rate, FX direction may remain volatile.

  Comparison

  The final two US rate cuts have been pushed to 2027, indicating a more hawkish outlook than previously forecast.

  Risks

  Policy path revisions, geopolitical safe-haven demand, and inflation data may change FX pricing.

• Developed market central bank balance sheets and liquidity

  QT, reinvestment policies, and changes in reserve demand can affect banking system liquidity and term premia.

  Strengths

  The US may have room for moderate balance sheet runoff, while the ECB's runoff has already entered a faster phase.

  Weaknesses

  The bar for aggressive runoff is high, and implementation may be constrained by financial market stability.

  Comparison

  New Zealand and Australia still have balance sheets elevated relative to 2019, while the US currently stands at about 21% of GDP.

  Risks

  Misjudging reserve demand, liquidity pressures, or financial market volatility may force central banks to adjust the pace of runoff.

Key data

• Developed market policy actions over the past three months0% rate cuts, 39% rate hikesThis shows that developed market central banks have not cut rates recently and that policy actions have been more hawkish.
• Emerging market policy actions over the past three months16% rate cuts, 7% rate hikesEmerging markets still show some rate-cutting, but also some rate hikes or a more cautious policy stance.
• Global Financial Conditions IndexEased by 24 basis points over the past three monthsIncluding 34 basis points of easing in developed markets and 10 basis points in emerging markets.
• Countries with the most notable easing in financial conditionsTurkey -117 basis points, South Korea -93 basis points, Romania -83 basis pointsThe report presents changes in financial conditions by country over the past three months.
• Countries with the most notable tightening in financial conditionsRussia +158 basis points, Israel +57 basis points, Brazil +57 basis pointsFinancial conditions tightened significantly in these economies.
• Global policy rate forecast for the next four quartersDown 0.1 percentage point to 3.1%On a GDP-weighted basis.
• Developed market policy rate forecast for the next four quartersAverage increase of 8 basis pointsHikes are expected in New Zealand, the euro area, Sweden, Norway, and Japan, partly offset by cuts in the US and UK.
• Emerging market policy rate forecast for the next four quartersAverage decline of 33 basis pointsCEEMEA is expected to fall by 208 basis points, Latin America by 35 basis points, while Asia rises by 4 basis points.
• US rate forecast revisionThe final two Fed rate cuts have been pushed back to June and December 2027Previously forecast for December 2026 and March 2027.
• Brazil rate forecast revisionEnd-2026 policy rate forecast raised by 75 basis points to 14.0%Reflecting a higher forecast for Brazil's rate path.
• Hungary rate forecast revisionEnd-2026 policy rate forecast lowered by 50 basis points to 5.25%Reflecting a lower policy rate path.
• Taiwan, China rate forecast revisionFurther rate cuts removed; rates now expected to remain at 2% through end-2026The previous path was 2.25%.
• South Korea rate forecast revisionEnd-2027 policy rate forecast raised by 25 basis points to 3.25%Indicating an upward revision to longer-dated rate forecasts.
• Relative to market pricingEnd-2026 forecasts are below pricing in 73% of developed markets and 57% of emerging marketsThis indicates Goldman Sachs is overall dovish relative to market pricing.
• Relative to consensus expectationsIn developed markets, 27% below consensus and 27% above consensus; in emerging markets, 32% below consensus and 36% above consensusOverall fairly balanced, without a one-sided dovish or hawkish bias.
• Developed market central bank balance sheetsNew Zealand is 8 percentage points above 2019 levels; Australia is 4 percentage points aboveThe report believes balance sheets in these regions remain clearly elevated relative to pre-pandemic levels.
• Assessment of the US Fed balance sheetThere is room for moderate balance sheet runoff, but the bar for a large decline is highIf reserve demand falls, that could support a modest adjustment.

Impact & implications

The main implications of the report for rates, bonds, FX, and macro asset allocation are that the market may be overestimating end-2026 policy rate levels in some developed and emerging markets, because Goldman Sachs' forecasts are dovish relative to market pricing; however, recent geopolitical shocks and tighter financial conditions in some economies mean the rate-cutting path is not one-way. For investors, it is necessary to track revisions to policy rate forecasts, inflation deviations, changes in financial conditions, and central bank balance sheet policies together to assess repricing risks in bond yield curves, exchange rates, and risk assets.

Risks

• Geopolitical events such as the Iran war may keep central bank actions hawkish and raise energy prices and inflation risks.
• Deviations of inflation from central bank targets or consensus forecasts may delay rate cuts or revive expectations of hikes.
• There are differences between market pricing and Goldman Sachs forecasts; if market pricing proves more accurate, dovish trades may face drawdowns.
• Data quality is insufficient in some economies, and the report excludes economies with forecast gaps greater than 3 percentage points or policy rates above 10% in certain comparisons.
• There is uncertainty around central bank balance sheets and reserve demand; overly rapid runoff could create liquidity pressure.
• Emerging markets face currency, capital flow, fiscal, and external financing risks, which may limit monetary easing room.

What to watch

• Whether the Fed's final two rate cuts are pushed back further, and whether the US end-2027 policy rate path is revised higher again.
• Whether policy rate forecasts recently revised for Brazil, Hungary, Taiwan, China, and South Korea continue to change.
• Whether developed market central banks shift from holding or hiking back to renewed easing, especially in the US, UK, euro area, and Japan.
• Whether emerging market easing becomes concentrated in CEEMEA, and whether Latin America and Asia show more pronounced divergence.
• Whether the Goldman Sachs Financial Conditions Index continues easing over the next three months or tightens due to geopolitics and risk-asset volatility.
• Central bank balance sheet policy, especially Fed reserve demand, ECB QT pace, and adjustments to the scale of UK QT.
• Whether the gap between end-2026 policy rate forecasts and market pricing and Bloomberg consensus widens or narrows.