Why Goldman Sachs is now changing its Federal Reserve interest-rate forecast

What happened

Goldman Sachs added a 25-basis-point Federal Reserve rate increase in March to its forecast, following hotter-than-expected October inflation data and three consecutive months of worsening inflation news. Its economist also expects a 25-basis-point increase at the Fed’s December meeting.

Confirmed

Global impact / market context

If the Fed raises rates as Goldman expects, borrowing costs for households and businesses could rise, potentially slowing spending and investment. Higher rates can also make interest-bearing assets more attractive relative to shares, while persistent price pressures may keep companies’ costs elevated.

Analyst inference

The article says traders were pricing in an almost 90% chance of a 25-basis-point December increase and a 10% chance of a 50-basis-point increase. Goldman’s added March forecast points to a more persistent tightening path than that immediate meeting pricing alone indicates.

Analyst inference

What to watch

1. Watch the Fed’s December meeting for whether it raises rates by 25 or 50 basis points, meaning one-hundredth of a percentage point each. Analyst inference
2. Watch next month’s dot plot, the Fed’s chart of projected interest rates, for whether officials signal further tightening in March. Analyst inference
3. Watch January price increases and inflation data for signs that cost pressures are worsening, the concern Goldman cited behind its March forecast. Analyst inference

Evidence

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