Goldman Sachs has changed its forecast for the path of US interest rates, predicting that the Federal Reserve will raise interest rates again by 25 basis points during its October meeting, after having expected the September increase to be the last one of the year.
The revision comes after the bank deemed the Fed’s last meeting to have carried more hawkish signals than expected, particularly in the committee members’ interest rate projections and Fed Chairman Kevin Warsh’s remarks.
The Fed's projections showed that 16 of its 18 members expect another interest rate hike in 2026, while only two do not anticipate a further increase. The estimated neutral interest rate also rose to 3.25% from 3.06%, a level considered neither to stimulate nor stifle the economy.
Goldman Sachs also noted that interest rate expectations among Federal Reserve members remained high until 2029, while Warsh focused in his remarks on the fact that the recent interest rate hike removed part of the support that monetary policy had been providing to the economy, a signal that the bank considered a prelude to the possibility of continued interest rate hikes.
With this adjustment, Goldman Sachs now expects a move in October, while other banks such as JPMorgan and Morgan Stanley had forecasts of an interest rate hike in December.
The October forecast means that markets will be watching the Fed's next meeting closely, especially with the US midterm elections approaching, while any new signals regarding inflation and the labor market could influence the timing of the next rate hike.
