Goldman Sachs tells investors to stay in the market! Three main reasons support an optimistic outlook: steady interest rates, falling oil prices, and AI boosting economic resilience

Jiemian Finance has learned that Ashok Varadhan, co-head of Goldman Sachs Global Banks and Markets, conveyed a simple message to investors concerned about rising interest rates, high oil prices, and the sustainability of the economy: stay invested. Varadhan said he maintains a constructive outlook on the market based on three main reasons: he expects the Federal Reserve will not raise interest rates again this year; he predicts oil prices will fall significantly below $70 per barrel by late 2026; and he believes the resilient economy will increasingly benefit from productivity gains related to artificial intelligence (AI). In a podcast last week, Varadhan said: “My advice is to continue investing.”

Market pricing had previously reflected the risk that the Federal Reserve might tighten monetary policy again amid persistent inflation pressures. After last Friday’s disappointing jobs report, traders adjusted their bets on the timing of future rate hikes by the Federal Reserve. According to the Chicago Mercantile Exchange Group’s FedWatch futures price indicator, the market’s expectation for a rate hike in September fell to about 50% on Monday, while the probability for an October rate hike was 63%.

However, Varadhan’s view on interest rates differs from current market pricing. He said: “I don’t think we’ll see a rate hike in the second half of this year. I think rates will remain unchanged.”

Varadhan stated that some of the factors previously fueling inflation are now beginning to fade, including the impact of tariffs. He noted that if geopolitical tensions around the Strait of Hormuz ease, it could further reduce price pressures.

Varadhan also believes that artificial intelligence will ultimately become a significant force driving disinflation. He said that although the construction of large-scale infrastructure necessary to support AI may create short-term resource constraints and push inflation higher, once related capacity is built, the resulting productivity improvements will have the opposite effect.

Oil prices are another reason for Varadhan’s optimism. He expects that as the year progresses, crude prices will fall sharply, becoming another potential source of relief from inflationary pressures. Varadhan said: “I think energy prices will come down again. I believe oil prices will eventually drop below $70 a barrel, and possibly fall further later this year.”

It is worth noting that as the market grows increasingly skeptical about whether the US and Iran can reach an agreement to increase shipping through the Strait of Hormuz, WTI crude futures rebounded above $80 a barrel on Monday.

The third major pillar supporting Varadhan’s view is economic resilience. He pointed out that, despite a series of external shocks, underlying nominal economic growth has shown remarkable stability. If some of the pressure factors fade, the economy could continue to expand while benefiting from productivity gains driven by artificial intelligence.

This economic resilience also keeps Varadhan bullish on the credit markets. He said that large-scale bond issuance means investors should demand higher risk premiums, but strong economic performance is helping the market avoid a sharp widening of credit spreads. Varadhan stated, “If you believe external shocks are fading and the economy remains resilient,” then expectations for the actual default rate can stay at a “fairly low” level.