Goldman Sachs’ head of global banking and markets expects oil to finish 2026 comfortably under $70 a barrel. On Monday, West Texas Intermediate futures settled back above $80. The distance between those two numbers is the entire debate.
Speaking last week on the firm’s “The Markets” podcast, Ashok Varadhan, co-head of global banking and markets at Goldman, made a three-part argument that investors unsettled by interest rates, energy costs and questions about how long the expansion can last should hold their positions.
“Stay invested would be my advice,” Varadhan said.
He’s betting against a Fed hike
Rates come first, since that is where his view diverges most sharply from the market’s. Traders have assigned genuine odds to the Federal Reserve restarting tightening while inflation refuses to fade. Varadhan doesn’t share that view.
“I don’t think we will see hikes in the latter part of this year,” he said. “I think rates are going to stay on hold.”
Friday’s weak jobs report nudged pricing in his direction. By Monday, the probability of a September move had slipped to roughly 50%, while October sat at 63%, based on the CME Group’s FedWatch measure of futures pricing. For a call that essentially predicts inaction, those are not trivial figures. A coin flip in September remains a coin flip.
He argues that the drivers that pushed inflation higher, tariffs included, are losing steam. A calmer geopolitical picture around the Strait of Hormuz would relieve still more pressure.
The AI argument cuts both ways and he says so
Varadhan sees AI eventually turning disinflationary — though not right away. He states plainly that constructing the infrastructure to support it puts strain on resources and pushes inflation higher in the short run, and that the productivity gains only reverse that effect after the capacity is genuinely built out.
It is a more nuanced framing than the version typically on offer. Construction is underway today. The reward arrives later, on a timeline he declines to specify.
Oil is the piece that hasn’t cooperated
“I think energy is going to go back down,” Varadhan said. “I think oil settles back down well below $70 a barrel, maybe even lower once we get towards the latter part of the year.”
Crude did the opposite this week. WTI pushed back over $80 per barrel on Monday as skepticism mounted about whether Washington and Tehran can strike an agreement to boost vessel traffic through the Strait of Hormuz. Varadhan is forecasting a decline of more than $10 from current levels — and the very Hormuz standoff he flags as a possible source of relief is precisely what is lifting prices right now.
Nominal growth keeps absorbing the hits
His third support is the economy. Through a series of external shocks, underlying nominal growth has proven durable, he said. Should those pressures recede, the expansion carries on and gains the AI productivity boost as a bonus.
The same logic underpins his constructive stance on credit. Elevated issuance justifies investors asking for somewhat greater compensation to take on risk, he said, yet a solid economy has prevented spreads from blowing out.
“If you think the exogenous shocks are going away and you still have the resilience of the economy,” Varadhan said, expectations for realized defaults can remain “fairly low.”
The conditional matters. That default outlook hinges on the shocks receding — the identical assumption carrying the weight in both the oil forecast and the rate forecast. Three reasons resting on one dependency.
The S&P 500 has climbed back to a record high in recent sessions, lifting its 2026 advance past 13%. “Stay invested” is guidance that costs nothing to heed if his read is correct and costs plenty should the Fed tighten in September. The thing to track is October futures pricing, not the podcast.