• Goldman Sachs (GS) expects just one more Fed rate hike, versus three priced by markets.
  • Strategist Vickie Chang points to strong historical equity gains after limited tightening cycles.
  • The forecast remains conditional, hinging on inflation and economic resilience.

Goldman Sachs has a message for investors: the Federal Reserve may be closer to the end of its tightening cycle than markets think. In a research note, strategist Vickie Chang argued that the Fed will likely deliver just one additional quarter-percentage-point rate hike, in December, bringing the federal-funds target range to 4.00%–4.25%. That contrasts with market pricing, which implies three hikes, including a possible move in March 2027, according to futures data.

The call is rooted in the belief that inflation will continue to cool, allowing the Fed to pause after today’s meeting and then hike once more before stopping. If correct, the current cycle would be one of the smallest since 1983, and history suggests that could be a tailwind for equities. Chang noted that the S&P 500 gained 34% in the year following the 1997 hike and 9% after the 2015 hike, both instances of limited tightening.

Fragile Prospects

But the bullish thesis comes with caveats. “The market may be preparing for more tightening than ultimately occurs,” Chang wrote, according to people familiar with the matter. Yet a pause is not necessarily the end of the cycle, and historical returns do not guarantee future performance. The Fed’s decision later today is widely expected to be a hold, with market-implied odds of an October hike at just 9.4%, according to Reuters (TRI). Traders see an 86.2% chance of a December move.

Goldman’s forecast has shifted recently. In mid-September, the bank expected another hike in October following the Fed’s September increase. The latest timing reflects a reassessment rather than a static view. The revision underscores the uncertainty surrounding the policy path, especially as Fed officials remain divided on how much weight to place on tightening financial conditions.

Economic data have been mixed. While growth has remained resilient, consumer pressures are uneven and business costs are rising, according to RBC (RY), which expects 75 basis points of total tightening, including September’s hike, with the remaining moves by the end of the first quarter of 2027. Moody’s (MCO) economist Mark Zandi argued that Treasury yields around 5% are already tightening financial conditions and that another immediate Fed hike would be a mistake.

For Goldman, the rate debate is more than academic. The bank’s third-quarter results showed net revenue of $18.68 billion, up 23% year over year, but down 8% sequentially. Investment-banking fees rose 21% to $3.22 billion, while equities revenue jumped 72% to $6.44 billion. CEO David Solomon has said no succession transition is underway, quelling speculation about a leadership change.

The stakes are high for investors. If the Fed stops sooner than expected, it could remove a key overhang and spark a rally. But if inflation proves sticky, forcing more hikes, or if economic weakness forces a pause without a decline in inflation, the outcome could be less rosy. As Chang’s note implies, the path to a rally is not guaranteed—it’s conditional on the data.

Correction: An earlier version of this article misstated the year of the S&P 500 gain following the 2015 hike. It was 9% in the year after, not 9% in 2015.