Goldman Sachs expects the Fed to deliver one more rate hike on Oct. 27 and then pause, a call that depends on Brent crude sustaining its pullback to cool inflation. The bank sees Brent falling to $85 a barrel by December, and the oil market has already moved sharply in that direction this week.
Goldman Sachs expects the Federal Reserve to raise rates once more at its Oct. 27 meeting and then hold, but the bank says that call rests on oil prices staying lower. A sustained pullback in crude that cools inflation is central to the "two-and-done" approach to rate hikes, the firm said ahead of a Fed meeting many expect to be hawkish.
The firm forecasts Brent crude will drop to $85 per barrel by December. Chief economist Jan Hatzius wrote that beyond October, the bank sees a stable funds rate as core PCE inflation comes down faster than the committee projects. According to Yahoo Finance: "we still expect rate cuts to our neutral rate estimate of 3.25-3.5%"
Brent crude slides toward Goldman's target
The oil call already looks directionally correct this week. Brent crude has plummeted nearly 13% from its recent peak of $113 per barrel, breaking back below the $100 psychological barrier to trade around $98.44.
The pullback was triggered by Saudi Arabia's partial restart of its East-West Pipeline. Diplomatic dialogue between the US and Iran at the United Nations General Assembly added further downside pressure, unwinding the geopolitical risk premium that had pushed oil to fresh highs for the year.
What comes next for the Fed
There is little precedent in modern FOMC history for skipping meetings before elections, Hatzius noted, pointing to the committee's 75-basis-point hike six days before the 2022 midterms. That history underpins Goldman's expectation of one more hike in October rather than a pause.
FedWatch Advisors founder Ben Emons pointed to two forces now aligning to lift risk appetite. He cited Meta's release of free AI agents alongside the IRGC's signal that it may open the Strait within seven days as catalysts behind the market's shift.
Source: Yahoo Finance
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