Goldman Sachs has changed its Federal Reserve outlook and now expects policymakers to raise interest rates by 25 basis points when the Federal Open Market Committee concludes its Sept. 15–16 meeting.
The revision came after the August Consumer Price Index report and a sharp increase in market expectations for tighter policy. Goldman had previously expected the Federal Reserve to leave rates unchanged. Its new forecast would take the federal funds target range from 3.50%–3.75% to 3.75%–4.00%.
The shift does not mean Goldman believes the inflation picture changed dramatically. In fact, the bank said the August report produced only a small adjustment to its underlying inflation view. Instead, the new call reflects a combination of economic data, communications from policymakers and market pricing that increasingly favors a rate increase.
Interest-rate futures assigned an 87% probability to a September hike after the CPI release, up from 72% one day earlier. The probability of at least one rate increase by the end of 2026 climbed to 97%.
That leaves the Fed facing a closely watched decision in which inflation data, market expectations and the credibility of its policy communication are all converging.
Goldman Changes Its Forecast Without Changing Its Inflation View
Goldman’s economists raised their estimate for monthly core Personal Consumption Expenditures inflation to 0.26% following the August CPI report.
That adjustment was relatively modest.
The bank explicitly said the report had not changed its fundamental view of inflation. Yet Goldman still abandoned its previous forecast for no change in September.
The reasoning highlights an important distinction between an economic forecast and a policy forecast.
Goldman does not need to believe inflation suddenly deteriorated in order to conclude that a rate increase has become the most likely Fed decision. The bank argued that keeping rates unchanged could provoke a sharp market reaction because investors had already assigned close to a 90% probability to a hike.
That interpretation places considerable importance on market expectations.
Still, Goldman’s forecast remains an assessment rather than advance knowledge of how officials will vote. The Federal Reserve has not committed to a September increase, and futures pricing cannot be treated as an official signal from policymakers.
August CPI Sends Conflicting Messages
The inflation report that triggered the forecast revision did not offer a simple case for tighter policy.
The U.S. Consumer Price Index rose 0.4% in August on a seasonally adjusted basis.
Over the previous 12 months, headline inflation remained unchanged at 3.4%.
Core CPI, which removes food and energy, increased 0.3% during the month. Its annual rate declined from 2.5% to 2.4%, the lowest annual core inflation reading in five years.
On the surface, the decline in annual core inflation could support the view that price pressures are continuing to moderate.
But other parts of the report moved in the opposite direction.
Energy prices were especially strong. The energy index rose 16.3% over the year through August. Food prices increased 2.7%.
Several service-related categories also registered monthly increases, including communication services, lodging, airline fares and education. Used vehicles also moved higher.
Medical care and motor vehicle insurance were among the categories that declined.
This mix helps explain why economists reached different conclusions from the same report.
Service Inflation Remains a Concern for Some Economists
KPMG chief economist Diane Swonk focused on the service components of the CPI report.
She estimated that services excluding housing rose 0.5% in August and were 3% higher than one year earlier.
Swonk described the gains as heavily concentrated in services and argued that those details remained uncomfortable for the Federal Reserve despite the decline in the annual core CPI rate.
Her assessment does not represent a conclusion from the Bureau of Labor Statistics or the Federal Reserve. It is an interpretation of the composition of the inflation report.
Swonk also estimated that headline PCE inflation for August could rise 0.4% on the month, while core PCE could increase 0.3%.
Under her forecast, annual headline PCE would reach 3.8%, while annual core PCE would stand at 3.4%.
Those figures have not yet been released by the Bureau of Economic Analysis.
The distinction matters because the Federal Reserve targets 2% inflation using the PCE price index rather than CPI.
Market Pricing Strengthens the Case for a September Move
After the inflation release, futures markets moved rapidly toward the expectation of a rate increase.
The probability of a September hike rose to 87%, according to the futures estimate reported by the Wall Street Journal. That was up from 72% the previous day.
The probability of at least one rate increase before the end of the year reached 97%.
This change in market pricing appears to have played a significant role in Goldman’s revised forecast.
The bank’s position is that a decision to leave rates unchanged could surprise investors given how strongly markets are already positioned for tighter policy.
That does not mean the Fed is required to follow market expectations.
It does, however, mean that the gap between market pricing and the eventual policy decision has narrowed considerably.
Economists Still Disagree About Whether a Hike Is Justified
Not everyone accepts the argument for higher rates.
James Thorne, chief market strategist at Wellington-Altus, questioned whether the underlying economic data had changed enough to justify Wall Street’s shift toward a hike.
He argued that Goldman’s revision appeared more closely connected to financial-market expectations than to a meaningful deterioration in inflation.
Thorne summarized his criticism by saying there had been no material change in the inflation outlook but a hike appeared increasingly expected by Wall Street.
His interpretation does not establish the Fed’s motivation.
Thorne also pointed to annual wage growth of 3.1% and said he did not see evidence of a verified wage-price spiral.
He argued that higher borrowing costs cannot increase oil production or fix supply disruptions. At the same time, tighter policy can reduce demand, investment and household purchasing power.
This creates a different framework for interpreting the same inflation data.
KPMG Sees a Longer Tightening Cycle
Swonk reached a much more hawkish conclusion.
She now expects three rate increases by early 2027 and said the August CPI report increased the possibility of a unanimous vote for a September hike.
Her forecast belongs to KPMG and has not been endorsed by the FOMC.
The gap between Thorne’s skepticism and Swonk’s expectations illustrates the uncertainty surrounding the Fed’s next steps.
One side emphasizes the decline in annual core CPI and questions whether tighter policy can address energy-driven or supply-related inflation.
The other focuses on persistent service inflation and the possibility that PCE measures will remain above the Fed’s target.
The Federal Reserve will have to assess both kinds of signals.
Bitcoin Trades Near $77,000 as Fed Expectations Rise
Bitcoin has also been reacting to the changing interest-rate outlook.
On Sept. 13, Bitcoin traded around $77,000 after moving between an intraday low near $76,500 and a high above $77,400.
The cryptocurrency remained below $80,000 as traders prepared for the Federal Reserve decision.
After the CPI release, Bitcoin briefly recovered above $78,000 while the probability of a rate hike reached 81% on Polymarket.
That estimate was lower than the 87% probability reported from interest-rate futures.
Before the inflation report, Bitcoin had been trading near $79,500 as investors approached three major U.S. economic events: producer inflation, consumer inflation and the September FOMC meeting.
The cryptocurrency had already been dealing with rising expectations for higher rates despite continued demand through spot Bitcoin exchange-traded funds.
ETF inflows can support demand, but they do not eliminate Bitcoin’s exposure to changes in interest rates, Treasury yields or the U.S. dollar.
Why Fed Decisions Matter for Crypto Markets
Higher policy rates can increase returns available on lower-risk assets.
That can affect investor demand for more volatile assets, including cryptocurrencies.
However, individual Bitcoin price moves cannot automatically be attributed to monetary policy alone. Crypto markets respond to multiple forces at the same time.
The recent trading range illustrates that complexity.
Bitcoin briefly moved above $78,000 after the CPI report even as expectations for a rate increase strengthened. It later traded closer to $77,000 ahead of the policy decision.
The Fed announcement therefore represents an important macroeconomic event for crypto traders, but not the only factor determining price direction.
The September Decision Comes With Updated Projections
The FOMC meeting begins Sept. 15 and concludes the following day.
At 2 p.m. Eastern Time on Sept. 16, policymakers will release the interest-rate decision, policy statement and updated economic projections.
Fed Chair Kevin Warsh is scheduled to hold a press conference at 2:30 p.m.
The Summary of Economic Projections will include officials’ estimates for inflation, unemployment, economic growth and the federal funds rate.
Those interest-rate projections are not binding commitments.
They can change as new data becomes available.
Markets will compare the new policy statement with previous Fed language to determine whether officials have changed their assessment of inflation, employment or the likely path of monetary policy.
Investors Will Focus on Whether One Hike Leads to More
A 25-basis-point increase would answer only the first question.
The larger issue is whether September would represent a one-time adjustment or the start of a broader tightening cycle.
Swonk’s expectation of three hikes by early 2027 points to one possible path.
Goldman’s revised September call does not, by itself, establish that the bank expects a prolonged series of increases.
Investors will therefore pay close attention to Warsh’s language after the decision.
Questions are likely to focus on service-sector inflation, energy prices, labor-market conditions and the relationship between September’s decision and future meetings.
The updated projections will also offer clues about how individual policymakers currently see the interest-rate path.
A Unanimous Decision Is Not Assured
Swonk suggested that the August report increased the possibility of a unanimous September vote, but unanimity is not guaranteed.
The policy statement will identify dissenting officials if any policymakers prefer a different option.
A dissenter could favor no change, a larger increase or another policy outcome.
The existence or absence of dissent could shape how markets interpret the strength of the Fed’s conviction.
A unanimous 25-basis-point increase would send a different signal than a closely divided decision.
That is why traders will examine both the headline rate move and the details surrounding the vote.
The Fed Faces a Decision Defined by Mixed Evidence
The September meeting arrives at a point where the inflation data does not provide a single, uncontested message.
Headline CPI remains at 3.4%.
Annual core CPI has fallen to a five-year low of 2.4%.
Yet monthly inflation remains elevated, energy costs have risen sharply and some economists remain concerned about service-sector price pressures.
At the same time, markets have moved aggressively toward expecting a rate increase.
Goldman Sachs has responded to those conditions by abandoning its previous call for unchanged rates and making a 25-basis-point increase its new base case.
That forecast will be tested on Sept. 16.
Until the FOMC publishes its decision, the distinction remains crucial: a hike may be strongly expected by markets, but it has not yet been delivered or promised by the Federal Reserve.
