Investing.com -- Goldman Sachs is pushing back on market pricing for Federal Reserve rate hikes, arguing that traders are overestimating the risk that rising oil prices will force the central bank to tighten policy.

Since the start of the Iran war, markets have moved to price roughly a 45% chance the Fed will hike in 2026, up from 12% before the conflict began.

Goldman analyst Manuel Abecasis believes the figure overstates the risk, pointing to four reasons hikes remain unlikely.

Goldman argues the current supply shock is "smaller and narrower" than those that triggered inflation problems in the past, noting that the economy is less oil-dependent than in the 1970s and that disruptions are more contained than during the 2021-2022 supply-chain crisis.

The bank also cited the economy's starting point as a buffer against broader price pressures.

The labor market is softening, wage growth is running below the pace consistent with 2% inflation, and inflation expectations remain anchored. These are conditions that Goldman says make large spillovers to core inflation unlikely.

Goldman further noted that the federal funds rate is already 50 to 75 basis points above the Fed's own estimate of the neutral rate, and that financial conditions have tightened by nearly 80 basis points since the conflict began.

The bank also found no meaningful historical relationship between oil price shocks and tighter Fed policy.

"Our probability-weighted Fed forecast remains meaningfully more dovish than market pricing," Abecasis wrote.