Fed Rate Hike Expected Next Week as Goldman Sachs Reverses Forecast

A Federal Reserve rate hike, widely expected to be 25 basis points, is now seen as almost certain for next week after Goldman Sachs became the last major Wall Street bank to abandon its no hike forecast.

Goldman Sachs Shifts Position

Goldman Sachs said its inflation outlook has not changed significantly, but it now believes the Fed will move to avoid unsettling markets that are already pricing in a hike with near certainty.

A Different Fed Than Two Years Ago

The shift marks a sharp contrast from two years earlier, when the Fed cut rates by 50 basis points as inflation ran much hotter. Now, with core inflation near multi-year lows, some economists argue this hike is driven more by market expectations than economic necessity.

One market strategist argued that raising rates won’t fix supply-side issues and instead risks slowing demand, investment, and wages, noting there is little evidence of a wage-price spiral. However, other economists say inflation pressures may be stronger than headline data suggests, driven by rising services costs, and expect multiple rate hikes into next year.