Goldman Sachs Revises Rate Hike Timeline
Goldman Sachs has moved its projection for the next US interest rate increase from October to December, following a weaker-than-expected inflation reading that reduced the likelihood of another Federal Reserve hike in October. The investment bank had previously anticipated a 25-basis-point increase at the October meeting. In a note released on Wednesday, the firm indicated it now sees a strong possibility that the Federal Open Market Committee will ultimately decide that further rate increases are not needed.[S1][S2]
In September the Fed lifted rates for the first time in three years, the initial policy step taken under incoming Chair Kevin Warsh, as it sought to rein in inflation. Wednesday's figures put the US personal consumption expenditures price index at 3.4% for August on an annual basis, under the 3.7% forecast from economists polled by Reuters. Goldman Sachs economists added that the newest inflation reading points to fourth-quarter core PCE running near 3.0% annualized, beneath the 3.4% median projection from FOMC participants.[S1][S2]
Williams' Comments and Market Reaction
Speaking on Tuesday, New York Fed President John Williams said policymakers could afford to wait and study incoming data before settling on their next rate decision. Should the economy track as anticipated, he suggested a single additional increase this year might be enough, stressing that following September's move there was no pressing need to act right away. Williams sits on the FOMC as a permanent voter, so his stance matters to markets. He stopped short of ruling out an October hike, though his tone favored patience.[S1][S2]
According to CME Group's FedWatch Tool, futures pricing now implies roughly a 38% chance of a quarter-point increase in October, compared with about 51% a session earlier and close to 71% a week before. The implied odds slipped from 64% to 54% on the day Williams spoke, then eased further to near 40% by Wednesday. Traders are now turning their attention to Friday's release of the pivotal September US nonfarm payrolls report.[S1][S2]
Political and Market Context
Because the late-October FOMC gathering lands just days ahead of the November midterm elections, the political backdrop makes an October increase harder to justify. A hike at that moment would probably provoke pushback from President Donald Trump and Republicans. Alongside this, the tightening effects rippling through the bond market are being watched as part of the wider economic landscape.[S2]
