Goldman Sachs expects the Federal Reserve to keep interest rates unchanged at this week’s meeting, while anticipating a second rate hike in December.
In a note published on Monday, the bank’s analysts suggested that members of the Federal Open Market Committee (FOMC) appear to have reached a compromise: raising rates at every other meeting.
Goldman Sachs economist David Mericle noted that the Fed’s "hawkish" pivot since September has led to a moderate tightening of overall financial conditions.
At the same time, he pointed out that this tightening is only slightly greater than the impact of a single rate hike—and significantly less than what the market had priced in, which had anticipated four hikes. Consequently, the FOMC is unlikely to view this tightening as excessive or as a substitute for further rate increases.
Goldman Sachs notes that a key question is how the Fed will adjust the language in its statement regarding the September rate hike. The bank believes the regulator might adapt phrasing used by Fed Vice Chair Philip Jefferson in a recent speech.
"We do not expect any significant new information to emerge from the press conference," Mericle wrote.
He added that the notable support for the "every-other-meeting" approach sets a high bar for any deviation from this plan before the end of the year.
If the Fed were to maintain this pace into 2027, "the regulator might consider a rate hike in March," Mericle noted—though he added that such a scenario remains unlikely.
"We do not expect a rate hike in March, as we anticipate an improving trend in inflation as the effects of tariffs, energy shocks, and price pressures linked to the development of artificial intelligence begin to wane," the economist explained. Nevertheless, Goldman acknowledges that a rate hike in March is possible if inflation data comes in worse than expected.
"The main risk is that oil futures are trading above our forecasts, largely due to concerns regarding a potential escalation of the conflict with Iran," noted Mericle.
Market expectations currently price in a peak interest rate slightly above 4.5%. Goldman’s forecasts are significantly less hawkish: the bank is skeptical about a scenario involving four rate hikes and anticipates "rate cuts down the road."