GOLDMAN Sachs expects the US Federal Reserve to raise interest rates by 25 basis points at its September meeting, joining a growing number of Wall Street firms that see further policy tightening as inflation concerns persist.
In a note on Friday, the brokerage reversed its previous call for the Fed to keep rates unchanged, citing markets pricing that points to a high probability of a rate hike and policymakers’ likely reluctance to surprise investors with a pause.
Goldman Sachs said the shift was driven primarily by market pricing rather than a significant change in its economic outlook, adding that the recent surge in oil prices could make some policymakers more inclined to support additional tightening.
The revised forecast comes as stronger-than-expected US producer price data and a surge in oil prices above $100 a barrel have rekindled inflation concerns, prompting investors and some brokerages to raise bets that the Fed may need to tighten policy further.
Markets are pricing in an 87 percent chance of a quarter-point Fed rate hike this month, up from roughly 70 percent prior to the latest data releases, and also expect another increase in December, according to CME’s FedWatch Tool.