- Goldman Sachs reversed its earlier forecast, now expecting the Federal Reserve to hike rates by 25 basis points in October rather than September followed by a pause. The pivot follows the Fed’s Wednesday 25bps hike to 3.75%-4.00% range and Fed Chair Kevin Warsh’s hawkish post-meeting commentary stating inflation remains “too high” and the latest hike merely removed a “dose of accommodation,” implying more rate hikes may follow.
- The Fed’s updated rate projections revealed a strong majority of policymakers expecting at least one more rate increase this year. Warsh’s hawkish tone at the press conference signaled policy is still not restrictive enough. Traders are now pricing just over 50% odds of another 25bps hike in October, according to CME FedWatch tool, validating Goldman’s pivot away from pause expectations.
- The forecast shift reflects market reassessment of Fed tightening bias after Warsh’s Jackson Hole signal proved credible with the September hike decision. Goldman’s October call suggests the Fed remains committed to rate increases despite supply-shock inflation (diesel, oil) that rate hikes cannot resolve. Bitcoin continues to trade near $76,260, up 0.5% on 24-hour basis, showing limited reaction to the rate hike outlook.
What Happened?
Goldman Sachs announced a 180-degree pivot in its Fed rate forecast, now expecting a 25bps hike in October rather than its earlier call for a September hike followed by a pause. The reversal follows the Fed’s Wednesday rate increase to 3.75%-4.00% and Fed Chair Warsh’s hawkish post-meeting commentary stating inflation remains “too high” and policy is still not restrictive enough. The Fed’s updated dot plot revealed a strong majority of policymakers expect at least one more increase this year. Traders are pricing just over 50% odds of an October 25bps hike per CME FedWatch. Bitcoin traded near $76,260, up 0.5% on 24-hour basis.
Why It Matters?
For bond investors, Goldman’s October forecast validates hawkish tilt of Fed policy trajectory; yields could remain elevated or rise further if additional hikes materialize. For equity investors, October hike expectations add to valuation compression as rates rise alongside supply-shock inflation. For cryptocurrency holders, the October hike forecast pressures Bitcoin and other non-yielding assets, despite 50% market probability (traders hedging uncertainty). For Goldman investors, the forecast pivot signals the firm is tracking Fed hawkishness and positioning clients accordingly for higher-for-longer rates.
What’s Next?
Monitor Fed communications through October for any signals of pause or tightening; if Warsh strikes a dovish tone, it could reverse the hike odds. Watch PCE inflation data releases; if core inflation disappoints (comes in lower), it could support pause expectations despite the Fed’s hawkish tone. Track Treasury yield movements; if 10-year yields spike above 5.25%, it would validate October hike pricing. Also monitor Bitcoin and gold for breaks lower; if they accelerate downside on October hike expectations, it would signal market repricing of rate-sensitive assets.
Affected Tickers & Coins: GS, BTC
Source: CoinDesk
