Goldman Sachs has shifted its forecast for the Federal Reserve’s next interest rate hike from October to December following weaker-than-expected inflation data from the US. The bank stated that the latest data significantly reduces the likelihood of a rate hike at the October meeting, while also strengthening the possibility that the Fed may not need any further hikes for the remainder of the year.
The core personal consumption expenditures (PCE) price index for August fell to 3.0% year-on-year, below the market expectation of 3.3%. Headline PCE inflation also came in at 3.4%, below the expected 3.7%. Goldman Sachs forecasts core PCE inflation to be around 3.0% year-on-year in the fourth quarter, while the median estimate of Fed officials is 3.4%.
On a monthly basis, the PCE price index, closely monitored by the Fed, rose 0.3 percent, while the increase in core PCE was limited to 0.2 percent. Despite the softening in inflation indicators, the continued strong performance of consumer demand in the US economy was noteworthy. Inflation-adjusted consumer spending increased 0.6 percent in August, marking its strongest monthly rise since March 2025.
Economic growth has also been revised upwards. The US economy’s second-quarter growth rate was raised from the previously announced 1.5 percent to 2.2 percent. The coincidence of strong consumption and growth data with a cooling in inflation increases uncertainty regarding the Fed’s interest rate policy in upcoming meetings.
Market forecasts show a decline in expectations for an interest rate hike in October. Market participants are pricing in a 65% chance that the Fed will not change interest rates at its October meeting, while the probability of a 25 basis point rate hike is around 31%.
*This is not investment advice.
