A tier-one bank moving to three hikes in the cycle supports the US dollar and front-end Treasury yields, and adds to pressure on rate-sensitive equities and gold. Pushing the first cut back to December 2027 extends the period of restrictive policy, which could weigh on long-duration assets. The reversal of Goldman’s late-October call also shows how much oil is driving the outlook: the Middle East escalation it flagged as a risk has fed directly into the inflation data. Further gains in crude, including from attacks on Hormuz shipping and Saudi Arabia’s East-West pipeline, would raise the odds of the hike coming in January rather than March.
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Three hot inflation prints have turned Goldman’s “maybe” on a March hike back into a “likely”.
Summary:
- Goldman Sachs still expects a 25bp Fed hike in December and has added another 25bp hike in March 2027
- The March move could come in January, but March is slightly more likely given expected milder November and December inflation data
- Goldman pushed its forecast for the first rate cut back a quarter, to December 2027
- It expects most FOMC members to signal a third hike in the December dot plot
- The bank still sees inflation meaningfully lower by end-2027 as tariff, energy and AI pressures fade
Goldman Sachs now expects the Federal Reserve to raise interest rates again in March 2027, following a quarter-point hike in December, after a third consecutive month of hotter-than-expected inflation data, the bank’s chief US economist David Mericle said in a note on Tuesday.
Goldman continues to forecast a 25 basis point increase at the Fed’s December 8-9 meeting, which would be the second hike of the current tightening cycle. The new March call adds a third. Mericle said the move could be brought forward to January, but March is slightly more likely. Inflation readings for November and December are expected to be relatively mild, while larger price increases early in the year are likely to lift January’s figures. The bank also pushed back its forecast for the first rate cut by a quarter, to December 2027.
The change follows October’s consumer price report, which showed a larger-than-expected rise. Goldman expects the run of firm inflation data to lead most Fed policymakers to signal a third hike in the December dot plot, and said a strong January inflation report would make delivering that hike the path of least resistance. The bank remains confident, however, that inflation will be meaningfully lower by the end of 2027 as the effects of tariffs, the energy shock and AI-related price pressures fade.
The forecast reverses a call Goldman made only weeks ago. In late October, the bank had removed a March hike from its base case. It warned at the time that an escalation in the Middle East that drove oil prices higher, combined with persistent inflation, could change the Fed’s path. Its asset management arm has also cautioned that hotter inflation could force a more aggressive tightening cycle extending into 2027.
Goldman’s revised outlook is broadly in line with Fed commentary this week. Philadelphia Fed President Anna Paulson said further gradual hikes seem appropriate, Chicago Fed President Austan Goolsbee called the CPI report borderline disturbing, and Governor Christopher Waller had said a hot reading could lead him to back a larger move. Markets are pricing a quarter-point December hike as close to certain, with a small chance of a half-point move.
With the federal funds target range currently at 3.75% to 4%, December’s decision and its updated projections will show whether policymakers are ready to signal the further tightening Goldman expects.
This article was written by Eamonn Sheridan at investinglive.com.