Goldman Sachs revises outlook, now sees Fed raising rates again in October

Goldman Sachs has revised its outlook for US monetary policy, now forecasting that the Federal Reserve will raise its benchmark interest rate by an additional 25 basis points in October after the central bank sent a more hawkish signal than expected.

According to Reuters, Goldman Sachs said the Fed's newly released rate projections showed a significant number of policymakers anticipate at least one more rate hike this year, and the bank set "two hikes this year" as its base scenario.

The revision overturns Goldman's previous view that the September hike would effectively mark the end of the current tightening cycle.

The Fed raised its benchmark interest rate by 25 basis points on Wednesday to a range of 3.75 to 4.00 percent — its first increase in three years since 2023.

Goldman Sachs said the meeting was more hawkish than anticipated, citing the upward revision in policymakers' rate projections and Fed Chair Kevin Warsh's repeated characterization of the move as merely "removing some degree of accommodation."

According to the CME FedWatch Tool, interest rate futures markets on Wednesday priced in a 52.0 percent probability of an additional hike in October, edging out the 48.0 percent probability of a hold. That marked a sharp jump from just 17.6 percent a week earlier.

Ahead of Goldman's revision, Bank of America had already projected a more aggressive tightening path, forecasting consecutive hikes in October and December for a total of three increases this year — 75 basis points including September. Deutsche Bank also expects three hikes.