Goldman Sachs has adjusted its forecast for the next U.S. interest rate increase by the Federal Reserve, now projecting a hike in December rather than November. The investment bank announced the change in a note to clients, citing recent economic data, including a government report that showed a moderation in inflation.
The revision followed the release of the Consumer Price Index (CPI) report by the Bureau of Labor Statistics. The report indicated that core inflation, which excludes volatile food and energy costs, rose at a slower pace than in previous months. According to economists at Goldman Sachs, this data suggests that the Federal Reserve’s previous rate hikes are having their intended effect on cooling the economy.
In their analysis, Goldman Sachs economists, led by Jan Hatzius, stated that the softer inflation figures reduce the urgency for the Federal Open Market Committee (FOMC), the central bank’s policy-setting body, to raise rates at its next meeting in November. The bank had previously assigned a higher probability to a November rate increase.
With the updated forecast, Goldman Sachs now sees a 25% probability of a rate hike in November, down from its prior estimate of 35%. The firm’s base case is now a 0.25 percentage point increase at the FOMC’s December meeting.
The Federal Reserve last raised its benchmark federal funds rate in July to a target range of 5.25% to 5.50%, a 22-year high. At its subsequent meeting in September, the FOMC voted to hold rates steady, allowing officials more time to assess the impact of past increases on the economy.
In public statements, Federal Reserve Chair Jerome Powell and other officials have maintained that their decisions will remain “data-dependent.” They have indicated a willingness to raise rates further if incoming economic reports on inflation and the labor market do not show continued progress toward the central bank’s 2% inflation target.
The adjustment by Goldman Sachs aligns its forecast with market expectations, which have also shifted following recent economic data. Pricing in federal funds futures markets, which reflects investor bets on the direction of interest rates, indicates that traders see a low probability of a rate hike in November and a higher, though not certain, chance of an increase by the end of the year.
