Goldman Sachs has executed a sharp reversal of its Federal Reserve trajectory forecast, now anticipating another rate hike as early as October after Chair Kevin Warsh struck a decidedly hawkish tone at the latest FOMC meeting.
🔑 Key Takeaways
- The Fed raised its policy rate by 25 basis points (bp) to a 3.75%–4.00% target range
- Goldman Sachs now expects another hike in October, abandoning its prior pause call
- CME FedWatch shows odds of an October move at just above 50%
- Brent crude has broken above $100 per barrel, stoking inflation concerns
- Bitcoin trades around $76,260, largely unmoved by the monetary developments
Goldman flips its Fed trajectory forecast
The investment bank has fully reset its monetary policy outlook in just a few weeks. Initially, it had penciled in a September hike followed by a pause, in line with its « no more than necessary » framework. But the September 16-17 FOMC meeting rewrote the script, prompting strategists to shift toward a meaningfully more restrictive scenario.
Goldman emphasized that the revision was designed to avoid blindsiding investors with a sudden regime change. The update comes as several other Wall Street houses align their forecasts with a longer-than-expected tightening cycle, a sign that consensus is shifting in real time.
Warsh doubles down on the hawkish message
The Fed Chair left no ambiguity about the future path during his press conference. He described the latest hike as the mere withdrawal of « a dose of accommodation, » arguing that current conditions remain insufficiently restrictive to bring inflation back to target.
« Inflation remains too elevated. The withdrawal of this dose of accommodation does not mark the end of our tightening. »
Kevin Warsh, Chair of the Federal Reserve
The wording marks a clear departure from the more measured language of prior meetings. It signals that the FOMC views the disinflation work as incomplete, despite moderation observed in pockets of the U.S. economy such as housing and durable goods.
Markets price in a restrictive October
Rate expectations shifted quickly after the press conference. According to CME FedWatch, which derives implied probabilities from Fed Funds futures, traders now assign just over a 50% chance of another 25 bp move in October.
The economic projections released at the end of the meeting confirm the pivot. A majority of policymakers now expects at least one additional hike before year-end, a sharp contrast with the stabilization narrative that dominated mid-year. Several major banks have accordingly raised their terminal rate projection (the expected ceiling for Fed Funds) toward 4.25%-4.50%.
Implied probability of Fed action (CME FedWatch)
| October scenario | Implied probability |
|---|---|
| 25 bp hike | ~52% |
| Rates unchanged | ~46% |
| 50 bp hike | ~2% |
Inflation drivers: oil and PPI
Several cyclical factors have hardened the stance of policymakers and forecasters alike. Brent crude has crossed the symbolic $100 per barrel threshold, a move likely to feed through into energy prices and, by extension, the entire cost chain.
Meanwhile, U.S. producer price index (PPI) data came in hotter than expected, reviving fears of sticky inflation in intermediate goods. Combined, these two signals have pushed several major banks to upgrade their forecasts and reinforced the hawkish dynamic that played out at the FOMC.
Bitcoin shrugs off the macro noise
Against this tightening backdrop, bitcoin has remained strikingly stable. The largest cryptocurrency was trading around $76,260 at the time of writing, up just 0.5% over 24 hours.
The muted reaction stands in contrast with the sensitivity typically observed around Fed decisions. Several analysts attribute the indifference to the recent crypto correction and to competing catalysts, such as spot Bitcoin ETF flows and ongoing stablecoin regulatory developments.
Some observers note, however, that the correlation between bitcoin and U.S. policy rates tends to strengthen over longer horizons. An unexpected extension of the tightening cycle could therefore weigh on the bullish dynamics of the leading cryptocurrency by raising the opportunity cost of risk assets and supporting the dollar.
Conclusion: a longer tightening cycle ahead
Goldman’s reversal highlights the growing difficulty of mapping the Fed’s path in an environment where inflation risks persist. If a fresh October hike materializes, it would push the Fed Funds rate above 4.00%, a level not seen in over a decade, and mechanically weigh on global liquidity.
Key catalysts ahead include the next CPI release, employment reports and remarks from FOMC officials. Any hawkish surprise would reinforce the prolonged tightening narrative, with potential spillovers across asset classes, including cryptocurrencies. Conversely, a marked decline in inflation would open the door to earlier rate stabilization, a scenario markets currently price in with limited probability.
Sources
- CoinDesk – Goldman expects another Fed rate hike in October
- BloomingBit – Fed coverage
- Goldman Sachs – What a Fed rate hike could mean for US stocks
- Yahoo Finance – Goldman Sachs now expects Fed hike
- Economic Times – Goldman Sachs expects Fed to hike rates
This article is published for informational and educational purposes only. It does not constitute investment advice. Do your own research (DYOR) before making any decision.
