Goldman Sachs Forecasts Additional Fed Rate Hike in October

Goldman Sachs forecasts a 25 basis point interest rate increase by the Federal Reserve. The bank expects this hike to occur at the October 27-28 meeting. This marks a sharp reversal from its previous outlook of a pause.

The current Federal Funds Rate stands at 3.75% to 4.00%. This level followed the unanimous 12-0 decision on September 16. Goldman Sachs Chief Economist David Mericle confirmed the revised forecast in a new note.

Fed dot plot signals hawkish shift

Sixteen of eighteen Fed policymakers project at least one more hike this year. The median year-end funds rate projection is 3.6%. This aligns with one additional quarter-point increase from the current midpoint.

The median neutral rate estimate rose from 3.06% to 3.25%. This change indicates a higher long-term interest rate outlook. The September meeting was more hawkish than Goldman initially anticipated.

Inflation pressures drive policy change

Rising energy costs from geopolitical conflicts fuel persistent price pressures. The Fed aims to return inflation to its 2% target. It has missed this goal for 5.5 years. Tightening monetary policy addresses these structural risks.

August CPI data released on September 11 came in hotter than expected. This prompted Goldman to update its September forecast from a pause to a hike. The bank cited the need for a timelier return to the 2% target.

Terminal rate expectations remain stable

Goldman Sachs keeps its terminal rate forecast at 3.25-3.50%. This assumes rate cuts begin in September 2027. A third 25 basis point cut is expected in March 2028. A December 2024 hike is not in the base case.

The bank notes that additional hikes are possible. The October meeting is viewed as the most natural time for the next move. This approach supports the Fed's stated goal of timely disinflation. Market expectations have shifted rapidly in response to recent data.