Goldman Sachs Changes Its Federal Reserve Call
Goldman Sachs has changed its outlook for U.S. monetary policy and now expects the Federal Reserve to raise interest rates at its September meeting.
The investment bank had previously expected the Fed to keep rates unchanged. It now forecasts a 25-basis-point increase at the September 15–16 meeting, reflecting growing concerns that inflation is proving more persistent than expected.
Stronger Inflation Data Changes the Outlook
The shift follows a series of stronger-than-expected inflation readings.
Recent data showed that both U.S. consumer and producer prices increased more than economists had anticipated in August. The figures have raised concerns that the progress made toward bringing inflation back toward the Fed’s 2% target could be losing momentum.
For policymakers, the latest numbers create a difficult situation. While higher borrowing costs can help contain inflation, further tightening could also put pressure on economic growth and employment.
Oil Prices Add Another Inflation Risk
Rising energy prices have added another complication.
Oil prices have moved above $100 a barrel as renewed conflict in the Middle East has raised concerns about global energy supplies. Higher crude prices can quickly feed into transportation, production and consumer costs, creating another source of inflationary pressure.
The combination of stronger domestic inflation and higher energy costs has made the Fed’s policy decision more complicated.
JPMorgan Also Expects Further Tightening
Goldman Sachs is not alone in becoming more hawkish.
JPMorgan now expects the Federal Reserve to raise rates by 25 basis points in both September and December. The bank has also increased its estimate for the longer-run policy rate to 3.25%.
The shift among major Wall Street institutions indicates that expectations for U.S. monetary policy have changed significantly in a short period.
Markets Increase Bets on a September Hike
Financial markets have responded quickly to the changing outlook.
Expectations for a September rate increase have risen sharply, with markets pricing in an 87% probability of a quarter-point hike.
That represents a major change from earlier expectations, when investors were more confident that the Fed could maintain or eventually lower rates as inflation moderated.
Fed Faces a Difficult Inflation-Growth Balance
The Federal Reserve now faces a delicate policy choice.
Keeping rates unchanged could allow inflationary pressures to persist if price growth continues to accelerate. Raising rates, however, could weaken economic activity at a time when policymakers also need to monitor employment and consumer demand.
The latest inflation figures have made the case for caution stronger, particularly as energy costs introduce another potential source of price pressure.
Rate Cuts Could Be Delayed
Goldman Sachs still expects the Federal Reserve to cut rates in 2027, but the bank now expects those reductions to come later than previously anticipated.
That suggests the September move would not necessarily mark the beginning of a prolonged tightening cycle. Instead, policymakers could use the increase to respond to renewed inflation concerns before eventually returning to an easing path if price pressures moderate.
Investors Await the Fed’s Guidance
The rate decision itself will be important, but investors will also closely examine the Fed’s guidance on future policy.
Markets will be looking for signals about whether policymakers expect additional increases after September or see the move as a temporary response to the latest inflation developments.
The Fed’s assessment of energy prices, inflation expectations and the broader economy will therefore be just as important as the rate decision.Goldman Sachs Turns Hawkish as Inflation Revives Expectations for a September Fed Rate Hike
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