Wall Street investment banking giant Goldman Sachs projects that the Federal Reserve (The Fed) will keep its benchmark interest rate unchanged at this week’s Federal Open Market Committee (FOMC) meeting, before implementing a second hike in borrowing costs in December. According to a recent research note published on Monday, policymakers in Washington appear to have reached a compromise to implement rate hikes on an alternating-meeting basis, a strategy intended to manage capital market volatility.
Goldman Sachs Chief Economist David Mericle explained that the hawkish policy shift initiated by the Fed since last September has, thus far, only moderately tightened financial market conditions. The current level of tightening is estimated to be equivalent to the impact of a single interest rate hike—significantly less than the aggressive market expectations, which had anticipated as many as four hikes. Consequently, the FOMC is not expected to use the current state of financial market tightening as a justification to halt further planned interest rate increases.
Regarding the central bank’s official communications this week, Goldman Sachs anticipates that Fed Chair Kevin Warsh will not unveil any major surprises or significant new information during the post-meeting press conference. The monetary policy statement is expected to simply adjust the language used to reference the September hike, adopting the cautious approach previously outlined by Vice Chair Philip Jefferson. This outlook effectively cements a commitment to rate hikes through the end of 2026.
Regarding the monetary cycle trajectory for 2027, Mericle suggests that while the theoretical framework might allow for further hikes in March 2027, Goldman Sachs considers such a scenario unlikely. The firm projects that core inflation trends will begin to cool gradually as early as the first quarter of next year, as the impacts of trade tariffs, global energy cost shocks, and price pressures linked to the artificial intelligence (AI) boom begin to subside within the real economy.
However, Goldman Sachs cautions that this outlook remains vulnerable to the risk of a spike in international crude oil prices, should the military conflict involving the U.S., Israel, and Iran escalate or persist. Although current derivatives market pricing suggests that the Federal Reserve’s terminal interest rate could peak above the 4.5% threshold, Goldman Sachs maintains a less hawkish stance, predicting that the central bank will ultimately be compelled to lower interest rates once geopolitical tensions ease.
