Goldman Sachs Switches to 25bp Fed Hike Call as Markets Price Roughly 90% Odds

Key Facts

Goldman Sachs changed its forecast for the Federal Reserve’s September meeting from no change to a 25bp rate increase. The bank said the revision was driven mainly by market pricing for a hike, rather than a material change in its economic assessment.

If the Fed delivers the projected increase, the federal funds target range would rise from 3.50%-3.75% to 3.75%-4.00%. That remains Goldman’s forecast; the Federal Open Market Committee will make the actual decision.

Bureau of Labor Statistics data showed consumer prices rising 0.4% month over month and 3.4% year over year in August. The core index, which excludes food and energy, increased 0.3% monthly and 2.4% annually.

Price pressure was also evident at the producer level. The final-demand Producer Price Index rose 0.4% month over month and 5.4% year over year in August. Final-demand goods prices advanced 1.1%, partly driven by a 4.2% increase in the energy component.

By September 14, markets were pricing roughly a 90% probability of a rate increase. That figure is a point-in-time estimate derived from interest-rate contracts, so it can change and is not a Federal Reserve commitment.

The Fed meets on September 15-16 and will release its decision on September 16 at 2:00 p.m. Eastern time, followed by the chair’s press conference at 2:30 p.m. The central bank held its target range steady in July, when 3 officials preferred a 25bp increase.