Goldman Sachs Sees 75bps Hike In Nov and Terminal Rate at 5%

The U.S. key gauge inflation rose 0.3% in September as costs of gas were slowing down. Meanwhile, the core personal consumption expenditures price index rose 0.5% from the previous month and 5.1% from the same period of last year. Despite slowing down from their fastest pace, prices were still going up nonetheless.


Goldman Sachs wrote in a note, stating that it believed the Federal Reserve will deliver a fourth 75 basis points rate hike at its November meeting, which will raise the target range for the Fed funds rate to 3.75-4%.

The firm now expects a 50bps hike in December, 25bps in February and 25bps in March, seeing the funds rate peaking at 4.75-5% by next year.

Goldman Sachs stated that it saw three possible reasons why the FOMC could end up hiking past the February meeting. First, inflation is likely to remain uncomfortably high for a while, which could make continuing to hike in small increments the path of least resistance. Second, more rate hikes might be needed to keep the economy on a below-potential growth path now that the fiscal tightening has mostly run its course and real income is growing again. Third, the FOMC might need to do more if a future pivot causes a premature easing of financial conditions.