Key Points
- Goldman Sachs expects another 25-basis-point rate increase in October
- Fed raises benchmark rate to 3.75-4 per cent
- US inflation forecast remains above the central bank’s 2 per cent target
ISLAMABAD: After the US Federal Reserve raised interest rates by 25 basis points to tackle stubbornly high inflation, Goldman Sachs now expects another hike in October, revising its earlier view that the central bank had completed its rate increases for the year.
The investment bank expects another 25-basis-point increase at the Fed’s October meeting after the central bank raised its benchmark interest rate by 25 basis points on Wednesday to a range of 3.75 per cent to 4 per cent.
READ ALSO: US Federal Reserve Raises Interest Rates to Tackle High Inflation
The Fed’s latest increase was the first in more than three years and came amid continued concerns about inflation and the strength of the US economy.
US Fed’s latest economic projections
Goldman Sachs economist David Mericle said the Fed’s latest economic projections and its assessment of longer-term interest-rate levels supported expectations for another increase. The bank now sees October as the most likely timing for the next move.
The Fed’s latest projections showed that policymakers expect interest rates to remain elevated through the year, while its inflation forecast remained above the central bank’s 2 per cent target.
The Federal Reserve projected the benchmark rate at 4.1 per cent at the end of 2026, compared with 3.8 per cent in its previous projection. It also raised its forecast for headline personal consumption expenditure inflation to 3.7 per cent from 3.6 per cent.
The central bank said inflation remained elevated and another policy adjustment could be required to bring price pressures back towards its 2 per cent objective. It also noted that economic activity had continued to expand at a solid pace.
The shift in Goldman Sachs’ outlook reflects changing expectations for US monetary policy after inflation proved more persistent than previously anticipated. Higher energy prices and resilient domestic demand have also complicated the outlook.
Two consecutive rate increases could affect global financial markets by supporting the dollar and lifting Treasury yields. Higher borrowing costs can also redirect American capital flows towards emerging markets and increase the cost of dollar-denominated debt.
The Fed has not committed to an October rate increase, however, and its policy decisions remain dependent on incoming inflation, employment and economic data.
The next policy meeting will therefore be closely watched for indications of whether the central bank intends to continue tightening monetary policy or pause to assess the impact of its recent moves.
