Counting the votes: Warsh faces a tough battle as the Fed girds for expected interest rate hike

Goldman Sachs, JPMorgan, HSBC, and Deutsche Bank are now forecasting a Federal Reserve interest rate increase this week, according to Reuters. The four institutions anticipate a quarter-point hike at the September 15-16 meeting and believe rates may remain elevated for longer as the Fed strives to achieve its 2% inflation target.

Market anticipation of a rate hike this week surged to roughly 88% to 89%, up from 67% to 70% following last week's inflation data. August inflation data exceeded expectations, with core prices registering their sharpest monthly rise in four months. Additionally, crude oil prices surpassed $100 a barrel due to escalating tensions in the Middle East, which heightened concerns about sustained inflationary pressures.

HSBC economist Ryan Wang noted that the lack of inflation progress tipped the balance toward a rate increase. JPMorgan economists, led by Michael Feroli, characterized the previous week as one marked by rising bond yields, energy prices, and robust inflation readings, making a rate hike at the upcoming Federal Open Market Committee (FOMC) meeting more probable than not.

The bank also raised its projection of the long-run policy rate to 3.25%. Goldman Sachs maintained its outlook for two Fed rate cuts in 2027, though it pushed back the timeline from earlier expectations, framing the anticipated hike this week as a response to market dynamics rather than a reflection of the underlying inflation picture.

The shift in Goldman Sachs' stance is a significant deviation from its previous assessments, as recently as last month, the bank had deemed a September rate increase highly unlikely, citing softer job and inflation data. The Federal Reserve entered the week's meeting having maintained interest rates unchanged throughout 2025, after a quarter-point reduction at the end of the year. The two-day policy session is set to conclude on Wednesday.