Why Goldman Sachs is now changing its Federal Reserve interest-rate forecast
Goldman Sachs' revision of its Federal Reserve interest-rate forecast in light of the latest CPI data highlights an accelerating consensus toward tighter monetary policy. The upward pressure on expected terminal rates now signals a recalibration among traders who had anticipated a pause in rate hikes. This shift is crucial as it suggests potential support for the U.S. dollar, particularly if other key players like the Fed align with Goldman's new outlook following the hot inflation print.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). Marketwatch's assessment aligns closely with our upper range, reflecting the heightened focus on potential Fed tightening as encapsulated by Goldman's forecast changes.
How firms align
JPMorgan aligns with Goldman's stance, projecting a target of 1.10 for EUR/USD. On the contrary, BofA maintains a bearish outlook with a target of 1.04 as outlined in our internal reports. This divergence highlights the contrasting views on future Fed decisions amidst economic data shifts.
What the data shows
Recent revisions indicate a broader expectation for sustained rate hikes, particularly if subsequent inflation metrics resonate with Goldman’s analysis. Please refer to /research/interest-rate-sentiment for more insights on market positioning around upcoming Fed meetings.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Goldman's revised Fed outlook supports higher terminal rates — a bullish sign for USD.
- 02Watch for consensus adjustment; a shift in sentiment could lead to USD rallies.
- 03Key catalyst: strong CPI data suggests Fed may reassess its dovish stance.
- 04Monitor for upcoming inflation releases that could further influence Fed policy.
Market implications
Investors should keep an eye on potential levels as the USD strengthens, especially around 1.08 in EUR/USD. Upcoming Fed meetings and inflation data releases will be critical in determining the next moves in the currency markets.
Risks to this view
Should inflation data moderate unexpectedly, or if any Fed communications suggest a more dovish outlook, these factors could invalidate the bullish USD sentiment and lead to a stronger Euro at lower levels.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.75
Firms mentioned
Sources & References
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