Goldman Sachs Adjusts Fed Rate Hike Forecast to December Amid Soft Inflation Data

Goldman Sachs has revised its forecast for the next interest rate hike by the Federal Reserve, now expecting it to occur in December instead of October. This adjustment follows the release of softer-than-anticipated inflation data for August, which showed a 3.4% year-over-year increase in the personal consumption expenditures price index, below the expected 3.7%. The bank also noted dovish comments from New York Fed President John Williams, contributing to its belief that further rate increases may not be necessary.

The change in Goldman’s outlook has influenced market dynamics, particularly at the short end of the U.S. Treasury curve, where two-year yields experienced their largest one-day decline in over a year. The probability of an October rate hike has dropped to below 40%, down from around 70% a week earlier, as investors reassess the likelihood of further tightening by the Fed. Goldman forecasts core PCE inflation to be 3.0% in the fourth quarter, which is lower than the Federal Open Market Committee's median projection of 3.4%.

Despite the softer inflation data, some Fed officials remain divided on the need for additional rate hikes. Minneapolis Fed President Neel Kashkari indicated that further increases may be necessary to manage economic growth, while other officials expressed concerns about persistent supply shocks and inflationary pressures from investments in artificial intelligence. The upcoming September payrolls report is anticipated to be a critical factor in determining the Fed's next steps regarding interest rates.

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Source: KLEA News