Goldman Sachs Now Expects a Further Fed Rate Hike in March 2027

The bank previously expected that increase in January. It is the first major bank to revise its call on the end of the hiking cycle since the inflation data came out, and the change matters well beyond the US: Gulf currencies pegged to the dollar, including the UAE dirham, follow Fed moves, and higher-for-longer rates weigh on the valuations of the technology companies leading this year's AI trade.

US inflation has now beaten forecasts for three months in a row. Markets are almost fully pricing a 25 basis point increase at the Fed's December 9 meeting, according to CME Group's FedWatch tool.

Goldman expects inflation to ease gradually through the rest of this year before price pressures return early in 2027, driven by the usual start-of-year price increases and persistently high costs. David Mericle, the bank's chief US economist, said the recent inflation readings could lead most members of the Federal Open Market Committee to signal in their next projections that a third increase is needed.

Mericle said the energy shock may have largely run its course by the March meeting, and possibly by January, but that the persistence of recent price pressures could shape how Fed officials judge the inflation outlook.

Goldman also delayed its forecast for the start of rate cuts to December 2027, from September 2027. Under its revised path, further cuts would follow in March, June and September 2028, keeping rates higher for longer than the bank had previously expected.

Consumer prices have been pushed up by higher oil prices linked to the US-Israeli conflict with Iran and by tariffs imposed by President Donald Trump's administration. Strong consumer demand and AI-related investment spending have added to the pressure.

The next major test for the forecast comes with November inflation data, due before the Fed's December 9 decision.