Goldman Sachs now expects the Federal Reserve to raise interest rates at its meeting ending September 16, reversing a forecast made as recently as last month that a September increase was “very unlikely”. The bank joins JPMorgan, HSBC and Deutsche Bank in forecasting a quarter-point rise after August inflation data came in stronger than markets expected.
David Mericle, Goldman Sachs’ chief US economist, said the bank’s baseline forecast now includes a 25-basis-point increase at the two-day Sept. 15-16 meeting. Such a move would lift the federal funds target range from 3.50%–3.75% to 3.75%–4.00%.
The shift follows an August report showing core consumer price index, or CPI, inflation rose 0.3% month-over-month. That exceeded the market expectation of 0.2% and marked the biggest monthly increase in the closely watched core measure in four months. Consumer prices rose 0.4% in August, while annual headline inflation was unchanged at 3.4%.
Crude oil also crossed $100 a barrel as hostilities in the Middle East intensified, adding to pressure on prices. HSBC economist Ryan Wang said: “Lack of inflation progress has tipped the balance”.
Markets have reacted quickly. Pricing put the chance of a quarter-point increase this month at roughly 88% to 89%, compared with 67% to 70% before last week’s inflation data. Another measure put the implied probability at 87%, up from about 70% before the latest data. As recently as last month, CME FedWatch data put the odds of a September increase at around 30%.
JPMorgan economists led by Michael Feroli described the previous week as one of “rising bond yields and energy prices and a firm enough set of inflation readings to make a rate hike at next week's FOMC meeting more likely than not”. The Federal Open Market Committee, or FOMC, is the Fed body that sets interest-rate policy.
The Fed entered this week’s meeting after leaving borrowing costs unchanged throughout the year. Its last move was a quarter-point reduction at the end of 2025.
Goldman Sachs has taken a more restrained view of the path after September. In a note published on Sunday, it kept its forecast for two Fed rate cuts in 2027, though it pushed those reductions back from its earlier timeline. The bank expects inflation trends to improve by December. It also expects the effects of tariffs and the Iran war to fade by December, which it said would reduce the need for another rate increase significantly.
Mericle said additional increases at later meetings were possible, though they do not form part of Goldman’s baseline forecast. The bank expects that most FOMC members may prefer to avoid another increase at the October meeting because of its proximity to the midterm elections.
JPMorgan has also raised its estimate for the long-run policy rate to 3.25%. The immediate question for the Fed is whether the August data and higher energy prices warrant action in September, while Goldman’s forecast assumes that the case for further tightening will weaken by December.
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