Goldman ditches one and done call, now sees a second Fed hike in October
At a Glance
The recent shift by Goldman Sachs to anticipate a second Federal Reserve rate hike as soon as October, abandoning their previous 'one and done' forecast, signals a more hawkish tone across the marketplace. Per the full note from InvestingLive, their expectations follow a more aggressive outlook from Wednesday's FOMC meeting, highlighted by a 16-2 dot plot supporting further hikes and an upward adjustment of the median neutral rate path to 3.25%. This recalibration suggests that other desks may also revise their timelines, enhancing support for both short-end yields and the U.S. dollar as markets price in a higher for longer scenario heading into the midterms. Furthermore, this creates a live meeting risk during a politically sensitive period, challenging previous assumptions about the Fed's timing strategy amidst the elections.
Key Takeaways
- 01Goldman Sachs expects a second rate hike in October, revising their previous 'one and done' stance.
- 02The shift adds live meeting risk ahead of the midterms, possibly affecting market positioning.
- 03Supporting indicators include a strong dot plot from the FOMC and raised neutral rate estimates.
- 04Market implications include potential pressure on equity valuations and bolstered short-end yields.
Full Analysis
What the desk is arguing
Goldman Sachs' recent pivot to forecasting a second interest rate hike in October instead of December establishes a tighter timeframe for market pricing around Fed actions. The desk interprets this change as indicative of a broader shift in sentiment toward a more hawkish lift-off, especially following the recent FOMC meeting wherein the dot plot displayed overwhelming support for future hikes.
The central details backing this view include a robust 16 to 2 majority for at least one more hike by 2026, coupled with no dissenting votes on current policy decisions. Moreover, Goldman's revision of the neutral rate estimate to 3.25% marks a qualitative shift that could impact equity valuations sensitive to interest rate movements.
Where it sits in our coverage
Our current consensus target for the U.S. dollar against major currencies is 1.075, with a range from 1.04 to 1.12. Specifically, jpmorgan sees a target of 1.10 for March 2026, while bofa aims lower at 1.04 in the same tenor. This updated outlook from Goldman sits at the higher end of our current spread, potentially influencing market sentiment toward more hawkish pricing in the near term.
How other firms see it
Several firms, including jpmorgan and morganstanley, align with the revised timeline for rate expectations, favoring a more aggressive hike path. Conversely, firms like bofa maintain a more dovish stance, preferring to hedge against immediate tightening. The evolving narrative is likely to steer attention toward USD-related pairs such as EUR/USD and USD/JPY, as these currencies are heavily influenced by Fed policy and economic indicators.
What the calendar says
No immediate events are scheduled on the calendar that would impact this outlook in the next 30 days, but upcoming economic indicators and potential policy comments leading up to the October meeting will be essential to monitor.
Market Implications
Traders should watch for movements in the dollar, particularly against the euro and yen, as these might react to the escalating market expectations around a potential Fed rate hike in October. Increased volatility in these currency pairs could serve as indicators of changing risk sentiment.
From the original
Goldman moving to October rather than December for the next hike tightens the near term calendar markets have to price around, and puts a live meeting risk squarely inside a window some had assumed the Fed would prefer to avoid given its closeness to the midterms. If other desks
Related speeches
4 itemsGoldman calls September Fed hike very unlikely as inflation eases
The desk interprets Goldman's recent commentary as a reaffirmation of dovish sentiment regarding U.S. monetary policy, especially as it pertains to the September Fed meeting. According to Goldman Sachs chief economist Jan Hatzius, sluggish economic indicators—including retail sales and payroll data—indicate a lower likelihood of an interest rate hike, dropping expectations for a move in September to around 30% and shifting the next potential increase to January 2027 instead of December 2026. This dovish outlook signals a broader reset in market pricing, particularly for U.S. Treasuries, where a steepening curve reflects diminishing rate hike expectations. As noted in the commentary, “the markets have not yet fully priced Goldman's more dovish view,” as two-year yields remain elevated above 4%. Overall, this dovish shift may have implications for the dollar's strength across pairs such as EUR/USD, GBP/USD, and USD/JPY.
Fed rate hike bets surge as Wall Street analysts converge on September move
In a notable shift, the consensus among major U.S. financial institutions is aligning towards a Federal Reserve interest rate hike as early as this week, driven by recent inflation data and rising bond yields. Per the full note [source], analysts from Goldman Sachs, JP Morgan, and HSBC now foresee a 25 basis point increase in September, deviating from initial expectations for a hold. This pivot indicates a broader anxiety surrounding persistent inflation, exacerbated by upticks in oil prices and long-term yields, further suggesting that the Fed is likely to act decisively rather than risk surprising the market. As traders assess these movements, the market is now pricing in an approximately 87% probability of a hike during this FOMC meeting, which reflects a significant shift in sentiment among major players.
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