Key facts
- Goldman Sachs now forecasts a second Fed rate hike in December.
- August PCE inflation data came in softer than expected.
- Goldman Sachs expects 3% PCE growth on a Q4-to-Q4 basis.
- New York Fed President John Williams signaled no urgency to raise rates.
- Polymarket data shows a 32% chance of a 25 bps Fed rate hike in October.
- There is a 64% chance the Fed will hold rates steady in October.
Goldman Sachs has revised its outlook, now anticipating a second Federal Reserve interest rate hike in December, a shift attributed to softer-than-expected August PCE inflation data. The bank also pointed to comments from New York Fed President John Williams, which suggested a lack of urgency for further rate increases. Despite these factors, Goldman Sachs believes the Fed may ultimately determine that additional hikes this year are unnecessary.
In a research note, Goldman Sachs indicated that an October rate hike is now unlikely. The bank's revised forecast projects 3% PCE growth on a Q4-to-Q4 basis, falling short of the median FOMC participant's forecast of 3.4%. The inflation report for August, released recently, showed a moderation that eased concerns about an imminent hike.
The Federal Reserve had previously raised rates for the first time since 2023 during the September FOMC meeting, citing inflationary pressures linked to Middle East uncertainty. While geopolitical tensions persist, Goldman Sachs sees a strong possibility that the Fed will conclude further rate increases are not required.
This recalibration follows recent remarks from Fed Board Governor Michael Barr, who had suggested that additional rate hikes might be necessary to bring inflation down to the 2% target in a timely manner, warning of increased upside risks to inflation.
Market expectations have shifted, with data from Polymarket indicating only a 32% probability of a 25 basis point Fed rate hike in October, a significant decrease from 70% last week. Conversely, there is now a 64% chance that the Fed will maintain current rates. The Bitcoin and broader crypto markets saw a rebound following the PCE data, as the prospect of stable rates is viewed positively for risk assets. The upcoming employment report is seen as the next key indicator for markets ahead of the October FOMC meeting.