Goldman Sachs Pushes Back Fed Hike Forecast to December

August core Personal Consumption Expenditures inflation rose 0.25% from July and 3.01% year-over-year, figures that fell below market expectations. Goldman Sachs now projects fourth-quarter core PCE inflation at 3%, trailing the 3.4% median forecast held by Fed policymakers. The bank attributed part of this downward shift to methodological adjustments, specifically revisions to portfolio management components.

Internal debate within the Fed remains active. New York Fed President John Williams has signaled a lack of urgency for an immediate October hike, favoring a more patient approach. Conversely, Fed Governor Michael Barr continues to advocate for further tightening, citing persistent inflation risks tied to energy costs and AI-driven investment demand. Market sentiment reflects this uncertainty, with CME FedWatch data showing a decline in the probability of an October rate increase.

The upcoming U.S. employment report, scheduled for release on October 2, remains the next critical milestone for policymakers. Following the Fed's unanimous decision on September 16 to raise rates to a 3.75%–4% range, the committee's path forward hinges on whether upcoming data confirms a consistent return to the 2% inflation target or necessitates additional policy intervention.