Key facts
- Goldman Sachs now expects the US Federal Reserve to raise interest rates by 25 basis points in October.
- The bank cited Fed Chair Waller's hawkish signals and the need to preserve policy credibility as reasons for the revised call.
- August core CPI increased 0.3% month-on-month, slightly above market expectations of 0.2%.
Goldman Sachs has revised its forecast, now predicting a 25-basis-point rate hike by the Federal Reserve at its October meeting, reversing its prior view that the tightening cycle would end in September. The bank stated in a note that October is the most likely time for the next move, as it would support a "timelier return" to the Fed's 2% inflation target at consecutive meetings.
This adjustment follows the August CPI report, which showed core inflation slightly above expectations. While Goldman Sachs believes that from an economic fundamentals perspective, a strong necessity for a hike is absent, attributing above-target inflation to temporary factors, the bank cited the Fed's communication credibility as the key reason for its revised call. With markets pricing in a nearly 90% probability of a September hike following Fed Chair Waller's hawkish signals, Goldman believes the Fed will act to avoid market turmoil and preserve its policy credibility.
Goldman Sachs joins other major Wall Street institutions like ANZ, BofA, RBC, and TD Securities in anticipating a similar move by the Fed in October. According to the CME FedWatch Tool, the odds of a Fed rate hike in October are now at over 50%. However, the crypto market has witnessed some recovery today, with Bitcoin trading above the $76,000 mark, signaling that investors remain confident despite the hawkish monetary policy stance of the US central bank. Some have still maintained their cautious stance as higher rates often impact riskier assets like cryptocurrencies.