Both banks expect a 25-basis-point rate increase at the September 15-16 Fed meeting after US inflation and oil prices rose more than expected.
The Fed rate hike expected this week has gained momentum as Goldman Sachs and JPMorgan now forecast a 25-basis-point increase amid stronger US inflation and rising oil prices.
Both Wall Street banks expect the Federal Reserve to raise its benchmark interest rate at the September 15-16 policy meeting, marking a significant shift in expectations.
Markets have also moved in the same direction. Investors are now pricing in an 87% probability of a quarter-point Fed rate hike, up from roughly 70% before the latest inflation data, according to the CME FedWatch Tool.
The shift comes after US consumer and producer prices increased more than economists expected in August. At the same time, oil prices moved above $100 a barrel as renewed conflict in the Middle East raised concerns about another source of inflation.
Goldman Sachs Changes Its Fed Call
Goldman Sachs previously expected the Federal Reserve to leave interest rates unchanged at the September meeting.
The bank has now reversed that view.
In a note on Friday, Goldman Sachs economist David Mericle said the bank expects a 25-basis-point rate increase at the September 15-16 meeting.
The change reflects the growing likelihood that the Federal Open Market Committee will respond to market expectations rather than risk surprising investors.
“We think that the FOMC will be reluctant to surprise,” Mericle said.
Goldman Sachs still expects the Fed to cut rates in 2027, but the bank now sees those reductions happening later than it previously expected.
JPMorgan Also Expects a September Rate Increase
JPMorgan has taken a similar position.
Economists led by Michael Feroli said recent economic data had made a rate increase at the upcoming meeting more likely.
The bank expects the Fed to raise rates by 25 basis points in September and make another quarter-point increase in December.
JPMorgan has also raised its estimate for the long-run policy rate to 3.25%.
The bank said the latest inflation figures have raised doubts about whether the recent disinflation trend can continue.
US Inflation Creates a New Problem for the Fed
The latest inflation figures have complicated the Fed’s policy outlook.
For much of the past year, investors had hoped that inflation would continue moving toward the central bank’s 2% target without requiring further rate increases.
The latest consumer and producer price data have challenged that assumption.
Higher energy prices add another risk.
Oil prices have risen above $100 a barrel following renewed hostilities in the Middle East. A sustained increase in energy costs could feed into transportation, production, and consumer prices, making it harder for inflation to return to the Fed’s target.
That combination has pushed investors to reconsider the path for interest rates.
Markets Now See an 87% Chance of a Fed Hike
Financial markets have responded quickly to the change in expectations.
The CME FedWatch Tool shows an 87% probability of a quarter-point rate increase at the September meeting.
That compares with approximately 70% before the latest inflation reports.
Markets also expect another increase in December.
The repricing has affected bond yields and other financial assets as investors prepare for a potentially more restrictive Fed policy.
Fed Decision Comes Into Focus This Week
Federal Reserve policymakers will conclude their September meeting on Wednesday.
The decision will provide a clearer signal about whether the central bank believes inflation has become persistent enough to justify further tightening.
Investors will also watch the Bank of Japan for policy signals during the week, adding another major central-bank event to the global market calendar.
For the Fed, however, the central question remains inflation.
Goldman Sachs Still Sees Rate Cuts Ahead
Despite its more hawkish near-term outlook, Goldman Sachs has not abandoned the prospect of lower interest rates.
The bank continues to expect two Fed rate cuts in 2027, although it now sees those reductions occurring later than previously forecast.
Goldman Sachs also argues that the rate increase expected this week would be driven more by market pricing than by a fundamental deterioration in inflation.
That distinction matters.
The Fed must balance renewed inflation risks against the broader economic outlook. A temporary increase in prices does not necessarily require a prolonged tightening cycle, but policymakers may be reluctant to ease financial conditions if inflation expectations begin moving higher.
Inflation and Oil Could Shape the Next Fed Move
The September decision is therefore about more than one rate increase.
If inflation continues to surprise on the upside and energy prices remain elevated, the Fed could face pressure to maintain tighter policy for longer.
If price pressures moderate again, however, the central bank could regain room to consider rate cuts later.
For now, Goldman Sachs and JPMorgan have aligned around a 25-basis-point increase, while markets have moved decisively toward the same outcome.
The Fed’s September meeting will show whether that consensus is justified.
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Chair of the Federal Reserve Kevin Warsh speaks during a news conference in Washington. Photo: AFP file
Source: KT
