Goldman Sachs expects the Federal Reserve to hold rates at this week's meeting and hike in December. The bank says FOMC participants appear to have settled on raising rates at every other meeting.
Goldman Sachs expects the Federal Reserve to hold rates at this week's meeting, then deliver a second rate hike in December. In a Monday note, the bank said FOMC participants appear to have settled on a compromise of raising rates at every other meeting.
Why the Fed is unlikely to see tighter conditions as a substitute
Economist David Mericle said the Fed's hawkish pivot has tightened broad financial conditions moderately since September. He noted that the tightening is only slightly more than is usually associated with one hike, and much less than the four hikes the market had priced.
As a result, Mericle sees the FOMC as unlikely to view the tightening as excessive or as a replacement for hikes. He added that seemingly strong support for hiking every other meeting sets a high bar for deviating from that plan through year-end.
What Goldman watches at the meeting
Goldman said a key question is how the Fed will modify the statement language referring to its September hike. The bank thinks the Fed may adapt language from a recent speech by Vice Chair Philip Jefferson. According to Mericle, "We do not expect significant new information from the press conference".
March hike is possible but not Goldman's base case
If the Fed maintains that pace in 2027, it could consider hiking in March, Mericle said, but he does not expect that outcome. He expects the inflation trend to improve as the effects of tariffs, the energy shock, and AI price pressures diminish.
However, Goldman said a March hike is possible if inflation data come in worse than expected. Mericle named oil as the most important risk: oil futures above Goldman's forecasts, largely reflecting concerns about potential further conflict with Iran.
Market pricing now peaks just above 4.5%. Goldman's forecasts are considerably less hawkish, as the bank is skeptical the Fed will hike four times and expects cuts down the road.
Source: Investing.com
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