The US Federal Reserve could raise interest rates again as early as October, with Goldman Sachs now expecting another 25-basis-point hike following the central bank's latest policy decision.
The forecast marks a shift in Goldman Sachs' earlier view that the Federal Reserve had likely completed its rate-tightening cycle after its September move. The investment bank now sees a potential "two-hike baseline" for 2026, based on the Fed's latest projections and its stronger-than-expected stance on inflation.
The Federal Reserve raised its benchmark interest rate by 25 basis points on Wednesday, taking the target range to 3.75%-4%. It was the Fed's first rate increase since 2023, as policymakers continue to grapple with inflation that remains above the central bank's 2% target.
Why Goldman Sachs expects another hike
Goldman Sachs' revised outlook is based largely on the tone of the Fed's latest meeting. Updated projections showed that a strong majority of policymakers expect at least one more rate increase this year.
According to Goldman, October could be the most likely window for another hike because the Fed has indicated that additional tightening may be needed to bring inflation back to its 2% target in a more timely manner, Mint reported.
The shift is significant because financial markets had been expecting the September hike to potentially mark the end of the current tightening cycle.
Markets reassess October rate hike odds
Investors have also started adjusting their expectations. According to CME Group's FedWatch tool, markets were pricing roughly a 50% probability of another quarter-point rate increase in October after the latest Fed decision.
However, the October meeting comes shortly before the US midterm elections, adding another layer of uncertainty to the policy outlook. Goldman Sachs Asset Management executive Kay Haigh has separately said the Fed could skip October because of the meeting's proximity to the elections.
That creates a key divide in the market: while Goldman Sachs' economists see October as the most likely timing for another hike, some within Goldman Sachs Asset Management expect policymakers could wait.
What it means for markets
A further increase in US interest rates could keep financial conditions tight and influence global asset prices, including equities, bonds, currencies and commodities.
For emerging markets such as India, higher US rates can also affect capital flows and currency markets. A stronger dollar and higher US Treasury yields can make emerging-market assets relatively less attractive to global investors.
Gold could also remain sensitive to the Fed's rate path. Higher interest rates generally increase the opportunity cost of holding non-yielding assets such as gold, although geopolitical risks and expectations around inflation can work in the opposite direction.
For now, the key question for investors is whether the Fed follows through with another hike in October or waits for additional economic and inflation data before making its next move.
Goldman Sachs is currently positioning for another 25-basis-point increase, while market pricing suggests investors remain far from certain about the timing of the Fed's next move.
Click it and Unblock the Notifications
Sign in with Google
