Goldman Sachs Pushes Second Fed Rate Hike Forecast to December

TLDR

• Goldman Sachs moved its forecast for a second Fed rate hike from October to December.
• August core PCE inflation rose 3.01% from a year earlier, below expectations.
• Goldman sees a strong chance the Fed decides no more hikes are needed.
• U.S. spot Bitcoin ETFs drew $2.39 billion in net inflows from Sep. 21 to 25.
• The September jobs report is due Friday, Oct. 2, at 8:30 a.m. Eastern Time.

Goldman Sachs has pushed back its forecast for a second Federal Reserve rate hike from October to December. The change came after August inflation data came in lower than expected.

The bank still expects a December increase. But it now sees a strong chance that Fed officials will decide no more hikes are needed.

Inflation Data Comes in Below Expectations

August core Personal Consumption Expenditures inflation rose 0.25% from July, according to figures cited by Investing.com. It was up 3.01% from a year earlier. Both readings were below forecasts.

Goldman now expects fourth-quarter core PCE inflation of 3%. That is 0.4 percentage points below the 3.4% median forecast from Fed policymakers.

The bank said part of the lower yearly reading came from changes in how the data is measured.

Second-quarter U.S. economic growth was revised up by 0.7 percentage points to a 2.2% annual rate. Goldman, however, cut its third-quarter growth estimate by 0.1 percentage points to 3.3% after the goods trade deficit widened more than expected.

Earlier in September, Goldman had moved the other way. On Sep. 13, the bank backed a September hike after first expecting the Fed to hold rates steady.

Fed Officials Split on Next Steps

New York Fed President John Williams said on Sep. 29 that he saw “no urgency” for an immediate second hike, Reuters reported. He still sees one more increase this year as his base case.

Fed Governor Michael Barr took a different view at the Detroit Economic Club. He said inflation risks had risen while risks to jobs had eased. He pointed to high energy costs, the Middle East conflict and demand tied to AI investment.

Barr noted that only two of the past 20 months showed readings in line with 2% core PCE inflation. “In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion,” he said.

He described employment as solid, with unemployment at 4.1% and job growth averaging about 80,000 a month this year.

CME FedWatch odds for an October quarter-point hike fell from 70.9% on Monday to 49.3% on Tuesday afternoon.

The Fed raised rates by 25 basis points on Sep. 16 to a range of 3.75% to 4%. It was the first increase since July 2023, and the vote was 12 to 0.

Sixteen of 18 Fed participants expected at least one more quarter-point hike before year-end. The median projection placed rates at 4% to 4.25% at the end of 2026 and 2027.

Former Dallas Fed President Robert Kaplan said on a Sep. 22 Goldman podcast that markets may be pricing in too much tightening. He favored waiting until December unless inflation data called for earlier action.

U.S. spot Bitcoin ETFs drew $2.39 billion in net inflows from Sep. 21 to 25, according to Farside Investors data. Every trading session saw positive flows, with BlackRock’s fund accounting for about $1.16 billion.

Even so, Bitcoin fell below $84,000 on Sep. 28 after reaching a seven-day high above $87,000, according to CoinGecko. WTI oil traded above $93 as traders watched U.S.-Iran talks.

After the Sep. 30 inflation release, futures markets priced about a one-in-three chance of an October hike, Reuters reported. Markets still expect a hike by December.

The September jobs report from the Bureau of Labor Statistics is due Friday, Oct. 2, at 8:30 a.m. Eastern Time.

The post Goldman Sachs Pushes Second Fed Rate Hike Forecast to December appeared first on Blockonomi.