Goldman Sachs now expects Fed to hike rates in September

Goldman Sachs and JP Morgan anticipate a rate hike from the US Federal Reserve during their September meeting. The two Wall Street institutions joined a growing number of analysts who have become more cautious about the prospect of easing price pressures without additional tightening of monetary policy. The increased hawkishness stems from recent inflation readings that came in higher than expected in August, with both consumer and producer prices rising above forecasts. Moreover, oil prices breached the $100 mark due to tensions in the Middle East.

Goldman Sachs revised its forecast and now expects a 25-basis-point increase at the September 15-16 Fed meeting, moving away from its previous stance of maintaining rates steady. JP Morgan echoed this hawkish tone, forecasting quarter-point hikes in September and December. The data has reignited apprehensions about the Federal Reserve's ability to meet its 2% inflation target after a period of moderation.

Goldman Sachs economist David Mericle noted that the Federal Open Market Committee (FOMC) is unlikely to surprise investors.

JP Morgan's economists, led by Michael Feroli, shared a similarly cautious outlook, highlighting the recent surge in bond yields and energy prices alongside strong inflation readings that make a rate hike at the upcoming FOMC meeting more likely. The latest data cast doubt on a sustained disinflation trend, leading JP Morgan to forecast another Fed rate hike this year and raise its estimate of the long-run policy rate to 3.25%.

Market expectations have shifted, with an 87% chance of a quarter-point Fed rate hike this month, up from around 70% prior to the latest inflation data. Another increase is expected in December, according to CME's FedWatch Tool. Goldman Sachs maintained its view that two rate cuts are still anticipated in 2027, though later than previously forecast, as the latest hike is seen as driven more by market pricing than inflation fundamentals.