Goldman Sachs Expects September Fed Rate Hike
Goldman Sachs Expects September Fed Rate Hike
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Key Points
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Markets raised the estimated probability of a September hike to 87%, up from about 70% before the latest inflation data, and were also pricing in another increase in December.
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August consumer prices rose 0.4% month over month, bringing annual headline inflation to 3.4%; core prices increased 0.3% monthly and 2.4% annually.
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Goldman Sachs only modestly increased its forecast for core personal-consumption-expenditures inflation after the latest data, reinforcing its view that current inflation pressures do not strongly justify a rate increase.
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Historical analysis from Carson Investment Research found that the S&P 500 typically fell in the month after the first 0.25% increase in each of the last five tightening cycles, but gained more than 10% over the following year.
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The recent oil-price surge pushed crude above $100 a barrel, a development that Goldman said could make some Fed policymakers more willing to support additional tightening.
Goldman Sachs now expects the Federal Reserve to raise interest rates by 25 basis points in September, reversing its previous forecast for no change MarketScreener. The shift reflects market expectations more than a major rethink of the economy, with investors pricing in an 87% to 90% chance of a hike. Recent inflation data — including a 0.4% monthly jump in August consumer prices — has reignited rate-hike expectations after months of cooling pressures MarketScreener.
August Inflation Data Shifts Market Expectations
August consumer prices rose 0.4% month over month, bringing annual headline inflation to 3.4% MarketScreener. Core prices — which exclude volatile food and energy — climbed 0.3% monthly and 2.4% annually, slightly hotter than expected. Markets jumped the estimated probability of a September hike from about 70% to 87-90% based on these readings MarketScreener.
Goldman Still Sees Most Inflation as Temporary
Despite the forecast shift, Goldman Sachs only modestly raised its forecast for core inflation after the latest data MarketScreener. The bank maintains that current inflation pressures above the Fed's 2% target are mostly temporary and do not strongly justify a rate increase. Goldman's view suggests the September hike may not kick off a prolonged tightening cycle that extends through 2024 and beyond.
Oil Prices Add Fuel to Rate-Hike Case
Crude oil has surged above $100 a barrel in recent weeks, a development MarketScreener notes could sway some Fed policymakers toward supporting additional tightening. Rising energy costs feed into overall inflation and can push headline numbers higher, even if the underlying trend remains mild. This oil-price surge has become a key wild card in the Fed's inflation assessment.
Stock Market Faces Mixed Signals After Rate Hikes
Historical data from Carson Investment Research shows the S&P 500 typically fell in the month after the first 0.25% increase in each of the last five tightening cycles. However, stocks gained more than 10% over the following 12 months in those same cycles. This mixed record suggests near-term weakness is possible, but longer-term gains remain likely if economic growth holds up.
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