Goldman Sachs, JP Morgan expect September Fed hike as inflation lingers

Goldman Sachs and JP Morgan anticipate a 25-basis-point rate increase at the Federal Reserve's September meeting, driven by persistent inflation concerns. Both Wall Street banks joined a growing number of analysts adopting a more hawkish stance after recent inflation data exceeded expectations. US consumer and producer prices rose more than anticipated in August, while oil prices surged above US$100 a barrel due to Middle East tensions.

Goldman Sachs revised its forecast, abandoning the expectation of unchanged rates and now projecting a 25-basis-point increase during the Sept 15-16 Fed meeting. JP Morgan forecasts quarter-point hikes in September and December. Economists from both firms cautioned that the Federal Open Market Committee (FOMC) may resist surprising markets.

Goldman's David Mericle noted the FOMC's reluctance to surprise, while JP Morgan's Michael Feroli emphasized the likelihood of a rate hike based on rising bond yields, energy prices, and strong inflation readings. The latest data have raised doubts about a sustained disinflation trend, leading JP Morgan to forecast additional Fed rate hikes and raise its long-run policy rate estimate to 3.25%.

Markets now price an 87% chance of a quarter-point Fed rate hike this month, up from around 70% before the latest inflation data, with another increase expected in December, according to the CME's FedWatch Tool.