Goldman Sachs now expects the Federal Reserve to raise rates a third time, by 25 basis points in March, after October inflation came in hotter than expected. The bank also pushed back the start of rate cuts to December 2027.
Goldman Sachs forecast a 25-basis-point Fed rate increase in March on Tuesday. The call follows hotter-than-expected October inflation data, which led the bank to drop its earlier view that the hiking cycle would end in December.
Deutsche Bank expects an additional quarter-point hike in January, on top of increases in December and March.
Third straight upside surprise in inflation data
Tuesday's report marked a third consecutive month of upside surprises. Markets fully expect a 25-basis-point hike on December 9, according to CME FedWatch.
Reuters ties rising inflation to higher oil prices amid the Iran war, US President Donald Trump's import tariffs, resilient consumer demand and robust AI investment. Higher living costs also added to voter dissatisfaction, which contributed to heavy midterm election losses for Trump's Republican Party last week.
Why Goldman picks March over January
Goldman said a third hike is more likely in March than in January. The bank expects inflation to ease through the end of the year, before renewed start-of-the-year price pressures amid elevated costs lift it again.
Chief US economist David Mericle said it is possible the energy shock will feel largely over by the March meeting, or even the January meeting. However, he suspects recent inflation readings will lead most FOMC participants to signal a third hike in the December dot plot.
Rate cuts pushed to December 2027
The brokerage now expects rate cuts to begin in December 2027, three months later than previously forecast. It sees additional cuts in March, June and September 2028.
Source: Reuters via Investing.com
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