Goldman Sachs Expects Federal Reserve To Raise Interest Rates By 25 Basis Points

Banking giant Goldman Sachs expects the US Federal Reserve to raise interest rates by 25 basis points following Wednesday’s Federal Open Market Committee (FOMC) meeting, scheduled for September 15 to 16.

JPMorgan also offered a hawkish outlook after data revealed consumer and producer prices rose more than expected in August, and oil prices returned above $100 following renewed Middle East hostilities.

Goldman Sachs Walks Back On Interest Rate Forecast

Goldman Sachs initially stated it did not expect the Federal Reserve to raise interest rates following September’s FOMC meeting. However, it walked back on its prediction after August data strengthened the case for a hike. The banking giant now expects a 25 basis-point rate hike, which would lift the target range from 3.50%–3.75% to 3.75%–4%.

According to the Federal Reserve’s official calendar, the Federal Open Market Committee is expected to announce its decision on September 16 at 2 p.m. Eastern Time. A rate hike could put substantial pressure on Bitcoin (BTC) and other risk assets. Higher rates generally lead to a stronger dollar and tighter liquidity conditions.

“Goldman Sachs has abandoned its forecast for the Fed to keep rates unchanged next week. The bank now expects a 25 basis-point rate hike at the September 15–16 meeting. That could put pressure on Bitcoin and other risk assets, as higher rates generally mean tighter financial conditions and a stronger dollar.”

According to a research note by Goldman Sachs, the bank made a marginal adjustment to its Personal Consumption Expenditures estimate, raising it to 0.26%. The bank stated in its research note, “ has not changed our fundamental inflation view.”

However, it warned of a sharp market response if interest rates were held steady, given it had already assigned a nearly 90% probability of a rate hike following the meeting.

August Inflation Data Muddles Waters

According to data from the Bureau of Labor Statistics, the US Consumer Price Index (CPI) rose 0.4% in August, while headline inflation remained steady at 3.4% over 12 months. Core CPI, which removes food and energy, rose 0.3% in August, but its annual rate declined from 2.5% to 2.4%, its lowest level in five years. However, the energy index climbed 16.3%, while food prices increased 2.7%. Airline fares, communication services, lodging, education, and used vehicles also rose, while medical care and motor vehicle insurance declined.

According to Diane Swonk, chief economist at KPMG, the Federal Reserve is not happy with some of the service sector numbers, despite the annual core rate falling. According to her estimates, services excluding housing rose 0.5% in August and 3% over one year.

“The gains were heavily in services.”

According to Swonk, August headline PCE inflation could rise 0.4%, while core PCE could increase by 0.3%, putting annual rates at 3.8% and 3.4%, respectively.

Economists Argue Against Hawkish Forecast

However, some economists have pushed back against forecasts by Wall Street banks. James Thorne, chief marketing strategist at Wellington-Altus, questioned Goldman Sachs’ revised position, stating that it likely reflected market expectations rather than a changed inflation outlook. Thorne stated, “No material change in inflation outlook, but a hike to calm Wall Street.”

He also highlighted a 3.1% increase in the annual wage to buttress the argument against a wage-price spiral. He added that higher borrowing costs cannot impact oil production or supply-chain disruptions, and that a rate hike could reduce demand, investments, and purchasing power.

Meanwhile, Swonk believes there will be three rate hikes by early 2027, stating, “We now expect three rate hikes by early 2027.”

Bitcoin Price Action

Bitcoin (BTC) is currently trading around $77,700, up almost 1% over the past 24 hours. However, it is more than 2% in the red on the weekly timeframe. The flagship cryptocurrency briefly crossed $78,000 after the odds of a rate hike reached 81%, and was trading above $79,000 before the inflation figures were released.

The flagship cryptocurrency started the previous week in the red, dropping 1.55% to $79,091. Selling pressure persisted on Tuesday, with the price dropping 0.82% to $78,447, before falling to an intraday low of $77,589. Buyers attempted a recovery on Wednesday as BTC reached an intraday high of $79,752. However, it lost momentum after reaching this level, marginally declining and closing the day at $78,283. Selling pressure intensified on Thursday as BTC fell over 2% to $76,536.

Buying pressure returned on Friday, and BTC climbed to an intraday high of $79,852. However, it could not cross $80,000, losing momentum and ultimately settling at $77,208, up 0.88% from Thursday. The price rose marginally on Saturday before declining 0.60% to $76,799. BTC is up 1.28% during the ongoing session, trading around $77,780.

The 14-day RSI is currently in the mid-50s, putting it in neutral territory. Meanwhile, the MACD has flipped to bearish, but suggests downward momentum is waning. The Fear & Greed Index is currently at 68, putting it firmly in “Greed” territory. However, markets expect a decline in BTC prices if the Federal Reserve raises interest rates following the FOMC meeting.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

https://www.cryptobreaking.com/goldman-sachs-expects-federal-reserve/?utm_source=blogger%20&utm_medium=social_auto&utm_campaign=Goldman%20Sachs%20Expects%20Federal%20Reserve%20To%20Raise%20Interest%20Rates%20By%2025%20Basis%20Points%20