Goldman Sachs Projects Fed Will Skip October Hike, Raise Rates in December

The Federal Reserve is likely to forgo an interest rate increase at its upcoming October meeting but will deliver another hike in December, according to an analysis from Goldman Sachs. The investment bank anticipates the central bank has settled on a more measured pace of monetary tightening for the remainder of the year.

December Hike Expected After Pause

Analysts at Goldman Sachs said that recent comments from Federal Open Market Committee (FOMC) participants point to a compromise strategy of raising the federal funds rate at "every other meeting." This pattern implies a pause this week, which would be followed by a rate increase at the conclusion of the committee's December meeting.

The report suggests there is a high bar to deviate from this plan through the end of the year, which should limit the market impact of Fed communication in the near term. Goldman Sachs stated it does not expect significant new information to emerge from the post-meeting press conference.

Financial Conditions vs. Fed's Goals

The Fed’s recent hawkish pivot has already contributed to a moderate tightening of broad financial conditions since September, according to the bank's analysis. However, Goldman Sachs argued that this tightening is not substantial enough to be seen by the FOMC as a replacement for further planned hikes.

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The report noted the tightening is "much less than is usually associated with the four hikes the market has now priced." Market pricing currently reflects expectations for a peak Fed funds rate of just over 4.5%, which Goldman Sachs considers more hawkish than its own baseline forecast.

Future Outlook and Key Risks

Looking ahead, Goldman Sachs does not expect a rate hike in March of next year, forecasting that the inflation trend will improve as pressures from tariffs and energy shocks diminish. A key focus for the October meeting will be the FOMC's statement, which the bank suggests might be modified to say future adjustments will depend on data, the outlook, and the balance of risks, echoing language from a recent speech by Vice Chair Jefferson.

The most significant risk to the outlook, according to the note, is the price of oil futures, which are currently above the bank's forecasts. These elevated prices largely reflect market concerns about potential geopolitical conflict.