Goldman Sachs Pushes Second Rate Hike Forecast to December After Soft PCE Inflation Data
Highlights
- Goldman Sachs said that an October Fed rate hike may be unnecessary.
- The bank pushed back the second rate hike in its forecast to December.
- It also said that the FOMC may consider a second hike as unnecessary.
Goldman Sachs has pushed its forecast for a second Fed rate hike to December after soft August PCE inflation data. The bank also cited New York Fed President John Williams’ comments as the reason for this move, while they ultimately believe that the Fed may deem a second hike this year unnecessary.
Goldman Sachs Says October Fed Rate Hike Now Unlikely
In a research note, Goldman Sachs said an October hike is now unlikely based on today’s inflation report, as they now expect 3% growth in PCE on a Q4-to-Q4 basis, well below the median FOMC participant’s forecast of 3.4%. The bank also cited John Williams’ comments signaling no urgency to raise rates as another reason for this view.
As CoinGape reported, August PCE inflation data came in below expectations, easing fears of a second Fed rate hike next month. The Fed notably raised rates for the first time since 2023 at the September FOMC meeting, citing rising inflation tied to Middle East uncertainty.
Middle East uncertainty persists, and talks to end the U.S.-Iran war have yet to yield positive results. However, Goldman Sachs said it sees a strong chance the Fed will conclude that additional hikes are unnecessary.
This comes just a day after Fed Board Governor Michael Barr said that more rate hikes may be necessary to bring inflation down to their 2% target in a timely fashion. He also warned that the upside risks to inflation have increased, signaling that they needed to act quickly and decisively.
Fed Now Expected To Hold Rates Steady
The Fed is now expected to hold rates steady following today’s PCE inflation report. Data from the top crypto prediction market platform Polymarket shows only a 32% chance of a 25 bps Fed rate hike, down from as high as 70% last week.
Meanwhile, there is a 64% chance that the Fed will hold rates steady despite inflation concerns. Bitcoin and the broader crypto market rebounded today on the back of the PCE data, as the Fed potentially holding rates steady rather than hiking represents a positive for risk assets.
The employment report released this Friday will be the next macro data point the market turns to ahead of the October FOMC meeting. A reading showing that the labor market remains solid could strengthen the case that the FOMC is in a good position to make more Fed rate hikes.
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