The hawkish messages from the US Federal Reserve (FED) at its September meeting have begun to shift Wall Street’s expectations regarding the interest rate path. While many major banks expect at least one more rate hike from the FED following the 25 basis point increase in September, some institutions are reducing the number of rate cuts they previously projected.
According to recent estimates, several institutions, including Goldman Sachs, Morgan Stanley, NatWest, Rabobank, Swedbank, and Commerzbank, have revised their forecasts to a more hawkish direction following the Fed’s September meeting. NatWest and Swedbank expect another 25 basis point rate hike in October, while Standard Chartered and Commerzbank have included a 25 basis point increase in their December forecasts.
Goldman Sachs also began expecting an additional 25 basis point interest rate hike in October, while shifting its expectations for subsequent rate cuts to September and December 2027 and March 2028. Morgan Stanley, on the other hand, forecasts a total of two additional 25 basis point rate hikes by the first quarter of 2027.
However, there is no consensus across Wall Street. The median of analyst predictions indicates that the Fed will raise interest rates by another 25 basis points from current levels. However, predictions are divided on the timing of this increase, with predictions ranging between October and December.
ANZ, Bank of America, RBC, TD, BNP Paribas, Deutsche Bank, Morgan Stanley, and Societe Generale are among the institutions expecting a total of 50 basis points of additional tightening. Several other banks, including JPMorgan, Barclays, UBS, Goldman Sachs, and Standard Chartered, are forecasting an additional 25 basis points of interest rate hike.
On the other hand, ING, SEB, and Citi maintain the view that the September rate hike was the final move in the current tightening cycle. These institutions do not expect another rate hike from the Fed in the near future.
The resulting picture shows that expectations of a “one-off interest rate hike” in the markets weakened after the Fed’s September meeting, and investors’ focus has shifted to whether the next rate hike will come in October or December.
*This is not investment advice.
