Goldman and JP Morgan Forecast September Fed Rate Hike
Major banks have shifted their outlook, predicting a 25-basis-point interest rate increase at the upcoming Federal Reserve meeting.
Goldman Sachs now expects the Federal Reserve to raise interest rates by 25 basis points this week. This marks a reversal from their previous forecast of no change. J.P. Morgan predicts a similar quarter-point increase in September. They also forecast another hike in December. These shifts follow stronger-than-expected inflation data from August.
Consumer and producer prices rose more than anticipated last week. Oil prices also climbed above 100 dollars per barrel. This surge was driven by renewed hostilities in the Middle East. Market participants are now pricing in an 87 percent probability of a rate hike. This figure stands up from approximately 70 percent before the latest data release.
Inflation data drives hawkish shift
The new inflation reports have challenged hopes for continued price easing. Goldman Sachs economist David Mericle stated the Federal Open Market Committee will likely avoid surprising the market. J.P. Morgan economists noted that rising bond yields and energy prices make a hike more likely. They believe the data cast doubt on a sustained disinflation trend.
J.P. Morgan raised its estimate for the long-run policy rate to 3.25 percent. The bank sees the current data as a signal that progress toward the two percent target may stall. Goldman Sachs attributes the expected hike partly to market pricing rather than fundamental inflation shifts. They still anticipate two rate cuts in 2027, though later than previously thought.
Market pricing reflects higher odds
Investors are closely watching policymakers as they conclude their meeting on Wednesday. The CME FedWatch Tool shows a significant jump in hike probabilities. This change occurred after the release of strong consumer price data. The Bank of Japan will also be a focus for policy signals during this period.
According to GN markets, the shift in bank forecasts highlights the sensitivity of monetary policy to recent economic indicators. The combination of energy costs and persistent price pressures has forced a recalibration of expectations. The market consensus has moved firmly toward tighter monetary conditions in the near term.
