Goldman ditches one and done call, now sees a second Fed hike in October
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.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
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.
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.
Risks to this view
This bullish outlook could be invalidated if economic data leading up to the October meeting suggests a slowdown, prompting the Fed to reconsider their rate path. A failure of inflation to persist at elevated levels could also push back expected tightening.
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 follow Goldman in pulling their own timelines forward, that would likely keep short end yields and the dollar supported into October, while adding to the case for a higher for longer rate path more broadly. The bigger shift here is arguably qualitative rather than quantitative: with Goldman abandoning the most dovish framing on the street, the range of outcomes priced into rates markets narrows toward the more hawkish end, which typically weighs on rate sensitive equity valuations and can pressure risk assets that had been leaning on a shallower tightening path. --- Goldman just gave up on "one and done," and now it's the bank penciling in the soonest next move on the Fed's calendar.
Summary: Goldman Sachs now expects a second 25bp Fed hike in October, dropping its prior call that September's hike would be the only one this year The shift puts Goldman ahead of JPMorgan and Morgan Stanley, both of which have been forecasting December for the next move Goldman flagged three reasons Wednesday's meeting was more hawkish than expected : a 16 to 2 dot plot majority for at least one more 2026 hike with no dissents on the actual vote, an elevated median rate path through 2029, and a neutral rate estimate raised to 3.25% from 3.06% Chair Kevin Warsh's repeated framing of the hike as removing policy accommodation was read by Goldman as building the case for further tightening The revision narrows the gap between Goldman and the more hawkish banks, and raises the odds of a live October meeting some had assumed would be skipped due to its proximity to the midterms Goldman Sachs has scrapped its one and done call on the Federal Reserve and now expects the FOMC to deliver a second 25 basis point rate hike in October, a reversal from its prior view that Wednesday's move would be the only increase this year. The shift marks one of the more notable changes in Wall Street's post meeting positioning, since it puts Goldman's timeline ahead of both JPMorgan and Morgan Stanley, which have been pointing to December for a follow up move rather than October. Goldman's economists said Wednesday's meeting came across as more hawkish than they had anticipated in three distinct respects.
First, a 16 to 2 majority of FOMC participants projected at least one more hike this year in the updated dot plot, and the actual rate decision itself carried no dissenting votes at all. Second, the median funds rate projection stayed notably elevated all the way through 2029, while the median estimate of the neutral rate, the level policymakers see as neither stimulative nor restrictive, rose to 3.25% from 3.06% in the prior projections. Third, Chair Kevin Warsh repeatedly characterized the hike during his remarks as having removed a degree of policy accommodation, a framing Goldman's team read as him actively building the case for further tightening rather than presenting Wednesday's move as a standalone, defensive step.
Taken together, those three signals appear to have done more to shift Goldman's outlook than the headline rate decision itself, which had been fully priced in and matched the bank's own forecast going into the meeting. The change brings Goldman's near term rate path closer in line with the Fed's own median guidance, and narrows the gap that had opened up between Goldman's more dovish framing and the more hawkish calls already in place at rival banks. It also raises the prospect of a live October meeting, a timing some commentators had previously flagged as unlikely given its proximity to the November midterm elections, though Goldman's revised call suggests that consideration may carry less weight with the committee than had been assumed.
This article was written by Eamonn Sheridan at investinglive.com.
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