By Kanishka Ajmera
Nov 11 (Reuters) – Goldman Sachs expects the Federal Reserve to hike rates by 25 basis points in March after higher-than-expected inflation data in October prompted it to reverse its forecast that the hike cycle would end in December.
Goldman’s call follows a similar decision by Deutsche Bank, although “the latter expects an additional quarter point increase in January, on top of increases in December and March.”
Tuesday’s inflation data marked a third straight month of upside surprises and cemented expectations of a 25 basis point hike on Dec. 9, which markets had fully priced in, according to the CME FedWatch tool.
The Fed raised its benchmark interest rate to a range of 3.75% to 4.00% in September, marking its first increase in three years.
Inflation has risen due to rising oil prices amid the war in Iran, tariffs on imports imposed by US President Donald Trump, resilient consumer demand and significant AI-related investments.
In a note released Tuesday, Goldman’s chief U.S. economist, David Mericle, said a third rate hike was more likely in March than in January because inflation is expected to slow through the end of the year before new price pressures at the start of the year push inflation higher.
The brokerage expects rate cuts to begin in December 2027, three months later than previously expected, followed by additional cuts in March, June and September 2028. REASON FOR A BIGGER RISE HIKE FROM THE FED
Hawkish comments from Fed policymakers earlier this week also underscored expectations for further tightening of monetary policy. Fed Governor Christopher Waller suggested a 25 basis point hike next month and a larger increase if price pressures accelerate.
Brokerage firms BofA Global Research, Citi and Standard Chartered said Waller’s remarks and recent inflation figures opened the door for a 50 basis point hike in December, but also noted “there is not enough data to strongly support this outcome.”
“There is a stronger-than-expected case for a 50 basis point rate hike in December, but it is not yet definitive,” said economists led by Steve Englander of Standard Chartered.
According to the CME FedWatch tool, the odds of a 50 basis point increase in December stand at 13.5% after the inflation report, up from zero before the data was released. weeks,” Citi said in a note.
(Reporting by Kanishka Ajmera and Joel Jose in Bengaluru; editing by Janane Venkatraman, Harikrishnan Nair and Shinjini Ganguli)
Gn bussni
