Goldman Sachs drops surprise call for next Fed interest-rate hike

Goldman Sachs drops surprise call for next Fed interest-rate hike

Mary Helen Gillespie

Fri, September 18, 2026 at 8:47 PM GMT+3 3 min read

• GS -0.60%

Goldman Sachs, in an abrupt pivot from just days ago, expects the Federal Reserve to raise interest rates by a quarter percentage point as soon as its next policymaking meeting in October.

Goldman Sachs Chief Economist David Mericle said in the note obtained by TheStreet that its revised forecast calls for another quarter-percentage-point hike at the October 27-28 FOMC meeting.

The unanimous 12-0 FOMC decision Sept. 16 lifted the Fed's benchmark Federal Funds Rate to a range of 3.75% to 4% and was widely expected by traders and Fed watchers.

It marked a renewed hawkish push to tighten monetary policy following persistent price pressures fueled by rising energy costs from the Iran War and related economic geopolitical shocks.

The rate hike was the result of months of public and private discussions by Fed policymakers who were trying to hold rates steady while allowing inflation to return to its 2% goal — a target it has missed for 5.5 years.

The quarterly dot plot forecast, or Summary of Economic Projections, also released Sept. 16, showed a median year-end funds rate of 3.6%, consistent with one additional 25-basis-point hike from the current midpoint. Sixteen of 18 participating policymakers anticipate at least one additional rate increase before the end of the year.

Goldman said the meeting was more hawkish than it had expected because:

• "First, a 16-2 majority projected at least one more hike this year, and there were no dissenting votes against today's hike.

• "Second, the median funds rate projection remained quite elevated through 2029, and the median neutral rate dot rose from 3.06% to 3.25%.

• "Third, Chairman Warsh described the hike as having "removed a dose of accommodation" three times.

Goldman shifts to an October rate hike

As I reported, Goldman had raised its September forecast from a Fed pause to a quarter-point increase, after August CPI figures came in hotter than expected Sept. 11, adding that another increase in October or December was not in its base case.

"We think October is the most likely time for the next move because it is most natural to deliver hikes that the FOMC presented today as supporting "a timelier return" to the 2% target at consecutive meetings," the new Goldman note said.

A December rate hike is not in Goldman's base case, although it added "additional hikes are possible."

"We have kept our forecast for the terminal rate unchanged at 3.25-3.5% by adding to the September and December 2027 rate cuts we already expected,'' including a third 25 percentage point rate cut in March 2028,'' Goldman said.

The CME Group FedWatch Tool expects the likelihood of another quarter percentage point hike as 53.1% on Oct. 28 and the probability of at least one additional hike of 87.5% on Dec. 9.

Warsh lived up to his hawkish reputation

Fed Chairman Kevin Warsh had a reputation as an inflation hawk when he served as a Fed governor from 2006 to 2011. During a speech last month at Jackson Hole, he reaffirmed a commitment to taming inflation with a distinctly hawkish shift.

At the FOMC press conference, Warsh said:

"We cannot affect any individual price, whether it be oil prices, whether it be foodstuffs at the grocery store. But what we can do, and will do is ensure that any change in relative prices don't broaden out. Don't have second and third order effects in the economy."

The big surprise: Fed policymakers signaled that another rate hike could be coming before the end of the year and potentially more if stubborn inflation from energy shocks and the Iran War geopolitical uncertainties don't ease.

The Fed's interest-rate hike, the first since January 2023, sent ripples through the entire financial system with the most immediate pressure hitting short-term borrowing such as variable-rate credit cards and student loans.

Indirectly, it impacts fixed-rate mortgage rates which rely on Treasury yields plus corporate debt and capital investment.

Related: Fed rate hike jolts markets after it signals a huge shock

This story was originally published by TheStreet on Sep 18, 2026, where it first appeared in the Fed section. Add TheStreet as a Preferred Source by clicking here.