GOLDMAN Sachs forecast an additional 25-basis-point US Federal Reserve rate increase in March on Tuesday after hotter-than-expected October inflation data prompted it to revise its expectations of an end to the hiking cycle in December.
The bank is the first among its peers to change its forecast since Tuesday's data marked a third consecutive month of upside surprises, which now has markets fully expecting a 25-basis-point hike on December 9, per CME FedWatch.
Goldman said a third rate hike is more likely in March than January, as it expects inflation to ease through the end of the year before renewed "start-of-the-year" price pressures amid elevated costs lift inflation again.
"It is possible that by the time of the March meeting, or even the January meeting, the energy shock will feel largely over. But we suspect that the recent inflation readings will lead most FOMC participants to signal a third hike in the December dot plot," Goldman Sachs chief US economist David Mericle said.
The brokerage now expects rate cuts to begin in December 2027, three months later than previously forecast, followed by additional cuts in March, June and September 2028.
Inflation has been supported by rising oil prices amid the US-Israel conflict with Iran, President Donald Trump's import tariffs, resilient consumer demand and robust AI investment.
Higher living costs added to voter dissatisfaction, contributing to heavy midterm election losses for Trump's Republican Party last week. - Reuters
