Goldman Sachs has significantly changed its forecast for the upcoming Federal Reserve meeting and now expects that interest rates will increase by 25 basis points at the September 15-16 meeting. This rate increase brings the target interest rate to a range of 3.75% to 4.00%.
Change in Interest Rate Forecast
Last month, Goldman Sachs' chief economist, Jan Hatzius, described a rate increase in September as "highly unlikely" and argued that weaker job and inflation data did not justify a change in monetary policy. However, now, the CME FedWatch tool shows that expectations for a 25 basis point increase have risen to 94.5%, indicating that futures market traders consider this increase almost certain.
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Reasons for Change in Monetary Policy
In this context, David Mericle, one of Goldman’s experts, explained that "the Federal Reserve may be reluctant to surprise the market" due to the strong consensus among investors. In addition to Goldman, JPMorgan, HSBC, and Deutsche Bank also predict a 25 basis point increase. A survey of experts shows that 85% of them now expect an increase, which is a significant change from last week.
Goldman Sachs also noted that this move is seen as a response to market dynamics and credit concerns, not a sign of worsening fundamental inflation. The bank consistently predicts two rate cuts in 2027, indicating that this increase is considered a limited period of tightening.
While the 10-year Treasury rate has reached 5%, increasing pressure on the Federal Reserve, consumer price index (CPI) data for August shows a monthly increase of 0.4% and an annual inflation rate of 3.4%. Additionally, crude oil prices have risen to over $100 per barrel, increasing inflationary pressures in transportation, agriculture, and manufacturing supply chains.
Given all these developments, the credibility of Cohen Warsh, the Federal Reserve Chair, is particularly under pressure following his speech at Jackson Hole in August. In that speech, he warned that the Federal Reserve must take "actions" if there is no confidence in reducing inflation towards the 2% target.
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