Goldman Sachs has become the first major bank to revise its Federal Reserve rate forecast following October's hotter-than-expected inflation report, adding a 25-basis-point hike in March to its projected path. The change comes after a third consecutive month of upside inflation surprises, which has led markets to fully price in a 25-basis-point increase at the December 9 meeting, according to CME FedWatch data.
The bank had previously expected the hiking cycle to conclude in December, but now sees a third hike as more probable in March than in January. Goldman's chief US economist David Mericle explained the timing in a note, stating: It is possible that by the time of the March meeting, or even the January meeting, the energy shock will feel largely over. But we suspect that the recent inflation readings will lead most FOMC participants to signal a third hike in the December dot plot.
Goldman's revised forecast also pushes the expected start of rate cuts to December 2027, three months later than its prior projection. The firm anticipates additional cuts in March, June, and September 2028.
Inflation has been underpinned by a combination of factors: rising oil prices amid the US-Israel conflict with Iran, import tariffs enacted by President Donald Trump, resilient consumer demand, and robust investment in artificial intelligence. Higher living costs have also contributed to voter dissatisfaction, which played a role in the heavy midterm election losses suffered by Trump's Republican Party last week.
The revision underscores the challenge facing policymakers as they navigate persistent price pressures. With markets now fully expecting a December hike, attention turns to the December dot plot for signals on the pace and timing of further tightening. Goldman's outlook suggests that while energy-related pressures may ease, underlying inflation trends could keep the Fed on a hiking path into early next year.