Goldman, JPMorgan Turn Hawkish Ahead of Fed Decision

A quarter-point increase would lift the Federal Reserve’s target range above its current 3.50% to 3.75%, but the more important shift is happening in the forecasts surrounding Wednesday’s decision.

Goldman Sachs and JPMorgan now expect the Fed to raise rates at its September 15-16 meeting, joining a growing group of analysts who have abandoned the assumption that policymakers could leave borrowing costs unchanged through year-end. Futures markets put the probability of a 25-basis-point hike at roughly 90% on Monday, according to CME FedWatch.

Goldman’s change was less a wholesale rewrite of its economic outlook than a concession to market pricing. The bank had previously expected a hold, but argued that policymakers would be reluctant to deliver a surprise pause when investors were already positioned for a hike. Goldman still sees much of the inflation overshoot as temporary and expects two rate cuts in 2027, though later than previously forecast.

JPMorgan’s view is more persistent. Its economists expect quarter-point increases in both September and December, after recent data raised doubts that disinflation would continue without further tightening. The bank has also lifted its estimate of the long-run policy rate to 3.25%.

The data have given the hawks fresh ammunition. The Bureau of Labor Statistics said consumer prices rose 0.4% in August, with the overall index up 3.4% from a year earlier. Core prices increased 0.3% on the month and 2.4% annually. Producer prices also rose 0.4% in August, while energy costs accelerated sharply.

Oil has complicated the Fed’s calculation. Crude prices moved above $100 a barrel as renewed conflict in the Middle East threatened supply and pushed gasoline prices higher. A central bank cannot produce more oil, but it can try to prevent a temporary energy shock from feeding into wages, services and inflation expectations.

That is the policy bind. Hiking into a supply shock may restrain demand while doing little to lower fuel prices. Holding steady, however, risks signaling that the Fed is willing to tolerate another inflation flare-up.

Markets have largely priced in the move. The real test comes afterward, when Chair Kevin Warsh explains whether September is a one-off insurance hike or the opening salvo of a broader tightening cycle.