TL;DR:
- Goldman Sachs revised its forecast and now expects the Fed to raise rates by 25 basis points in October, abandoning its previous call for a pause.
- The Fed raised its benchmark rate to the 3.75%-4.00% range; 16 of 18 officials project at least one more hike this year.
- Markets assign a 53% probability to an October hike and 81% to an additional hike in December, according to CME FedWatch data.
Goldman Sachs reversed its forecast on the Federal Reserve’s monetary policy and now anticipates a new interest rate hike in October, making a complete U-turn from its previous expectation of a single annual adjustment followed by a pause.
This new forecast came after the Fed raised its benchmark rate by 25 basis points, bringing it to the 3.75%-4.00% range in what represents the institution’s first increase in three years.
The central bank’s updated projections were decisive in Goldman’s decision to revise its base scenario. A majority of 16 to 2 among Fed officials indicated they expect at least one additional hike before the year ends, while four of them projected two more increases.
Inflation Remains “Too High”
Fed Chair Kevin Warsh reinforced that message at the post-meeting press conference, noting that inflation remains “too high” and that the adjustment made only removed a “dose of accommodation“, suggesting monetary policy has not yet reached a sufficiently restrictive level.
Goldman Sachs: A New Rate Roadmap
Goldman’s analysts inferred from the Fed’s message that officials could lean toward consecutive hikes rather than a more gradual approach, making October the most likely window for the next move. The bank also noted that policymakers are increasingly prioritizing an accelerated return of inflation to the 2% target.
Goldman’s forecast is gradually aligning with those of major financial institutions. Bank of America Global Research holds the most hawkish stance in the market, projecting hikes in both October and December.
Morgan Stanley and Australia’s Macquarie also added a hike in March 2027 to their existing forecasts. The global political context is also key: oil prices surpassed $100 per barrel, fueling concerns about the persistence of inflationary pressures.
