Goldman Sachs Delays Fed Rate Hike Forecast to December on Easing Inflation

Goldman Sachs has revised its forecast for the next Federal Reserve interest rate hike, pushing the expected timing back to December. The adjustment follows a key inflation report that came in below expectations and recent commentary from a senior Fed official.

Inflation Data Drives Forecast Change

The primary catalyst for the new forecast was the August core Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred measure of inflation. The report showed a monthly increase of 0.25%, which was lower than anticipated.

This brought the year-over-year rate down to 3.01%, also short of forecasts. As a result, Goldman Sachs now projects year-end core PCE inflation to be 3.0% on a Q4/Q4 basis, which is notably below the Federal Open Market Committee's (FOMC) median forecast of 3.4%. The bank also noted that comments from New York Fed President John Williams contributed to its view that an October hike is now unlikely.

Broader Economic Indicators

While inflation shows signs of cooling, other data points to a resilient U.S. economy. The third estimate for Q2 real GDP was revised upward by 0.7 percentage points to a 2.2% annualized growth rate, driven by stronger consumption and investment.

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Additionally, annual revisions showed Q1 2026 real GDP growth was revised up to 2.5%. The personal savings rate was also revised significantly higher, standing at 4.1% in August. Despite these signs of strength, Goldman Sachs slightly lowered its Q3 GDP tracking estimate by 0.1 percentage points to 3.3% after the goods trade deficit widened more than expected.

What This Means for Policy

The shift in Goldman Sachs' outlook is significant for markets pricing the future path of monetary policy. Beyond delaying the next expected hike to December, the firm stated there is a strong chance the FOMC may conclude that no further rate increases are necessary.

This suggests that the cumulative effects of the Fed's previous tightening cycles may be sufficiently cooling inflation, potentially allowing the central bank to pause its hiking campaign for longer than previously anticipated or end it altogether.