Goldman Sachs called on investors not to leave the market! Three reasons why interest rates do not rise, oil prices fall, and AI boosts economic resilience support optimistic expectations

The Zhitong Finance App learned that Goldman Sachs's co-head of global banking and marketing business sent a simple message to investors who are concerned about rising interest rates, high oil prices, and economic sustainability — continue to invest. Valadhan said his constructive views on the market are mainly based on three reasons: he doesn't expect the Federal Reserve to raise interest rates again this year; he expects oil prices to fall sharply below $70 per barrel in late 2026; at the same time, he believes that a resilient economy will increasingly benefit from increased productivity related to artificial intelligence (AI). “My advice is to keep investing,” Varadhan said on the podcast last week.

Market pricing previously reflected that while inflationary pressure continues, there is still a risk that the Federal Reserve will re-tighten monetary policy. Following the disappointing employment report last Friday, traders adjusted their bets on when the Federal Reserve will raise interest rates in the future. According to the Chicago Mercantile Exchange Group's FedWatch futures price index, the market expects the probability that the Fed will raise interest rates in September to drop to about 50% on Monday, while the probability of an October rate hike is 63%.

However, Valadhan's views on interest rates are at odds with current market pricing. He said, “I don't think we'll see interest rate hikes in the second half of this year. I think interest rates will stay the same.”

Valadan said that some of the factors that previously fueled the rise in inflation are beginning to subside, including the impact of tariffs. He pointed out that if the geopolitical tension surrounding the Strait of Hormuz abates, it may further reduce price pressure.

Valadhan also believes that artificial intelligence will eventually become an important force driving the fight against inflation. He said that although large-scale infrastructure construction required to support the development of artificial intelligence may cause resource constraints and increase inflation in the short term, once the relevant production capacity is established, the resulting increase in productivity will have the opposite effect.

Oil prices are another reason Valadhan remains optimistic. He anticipates that as this year progresses further, crude oil prices will drop sharply, thus becoming another potential source of easing inflationary pressure. Valadan said, “I think energy prices will drop again. I think oil prices will eventually fall back below $70 per barrel, and may even drop further later this year.”

It is worth mentioning that as the market increasingly doubts whether the US and Iran can reach an agreement to increase shipping volume through the Strait of Hormuz, WTI crude oil futures rose again to above $80 per barrel on Monday.

The third pillar underpinning Valadan's views is economic resilience. He pointed out that despite a series of external shocks, potential nominal economic growth still showed remarkable stability. If some of the stressors subside, the economy is likely to continue to expand while benefiting from productivity gains driven by artificial intelligence.

This economic resilience has also made Valadan continue to be optimistic about the credit market. He said that large-scale bond issuance meant that investors should demand higher risk compensation, but strong economic performance helped the market avoid a sharp increase in credit spreads. Valadan said, “If you think external shocks are receding while the economy remains resilient,” then the market's expectations for the actual default rate can still remain “quite low.”