• Goldman Sachs (GS) now expects the Fed's next rate hike in December, not October, after August core PCE inflation cooled to 3.0% year over year.
  • The softer reading strengthens the case for a pause at the October 27–28 FOMC meeting.
  • But with inflation still above the Fed's 2% target, the central bank's tightening bias remains intact.

Goldman Shifts Forecast

Goldman Sachs has revised its call for the next Federal Reserve rate increase, pushing it from October to December after softer-than-expected inflation data, according to people familiar with the matter. The shift comes after August core PCE inflation—the Fed's preferred underlying price gauge—came in at 3.0% year over year, below consensus expectations and well beneath the Fed's own 3.4% fourth-quarter-to-fourth-quarter median projection.

The revision marks a notable turnaround for the investment bank, which had only recently flagged October as the likely next move. Goldman now sees a strong chance the Fed ultimately decides no additional hikes are necessary if disinflation persists.

The change materially weakens the case for an immediate follow-up hike, though it does not settle the issue. Inflation remains a full percentage point above the Fed's 2% objective, and the FOMC's September projections still imply one further increase by year-end.

A Unanimous September Hike

On September 16, the FOMC unanimously raised the federal-funds target range by 25 basis points to 3.75%–4.00%—its first increase in nearly three years. The statement cited solid growth, resilient domestic spending, strong productivity and investment, a stable labor market, and still-elevated inflation.

The newly released August PCE report showed annual core PCE inflation at 3.0%, after methodological revisions lowered previously reported readings. That outcome was softer than anticipated and has strengthened the argument for waiting for more data rather than hiking again at the October meeting.

Goldman's new baseline is a December hike—or potentially no additional increase if disinflation persists. The headline's 3.0% Q4/Q4 Goldman forecast is 0.4 percentage point below the FOMC median.

The central case is therefore shifting from a rapid, back-to-back tightening sequence toward "pause, assess, then decide"—not toward imminent easing.

Divergence with the Fed

The gap between Goldman's view and the FOMC's September baseline is clear. Goldman sees October as unlikely and December as more plausible, with no further hike a meaningful possibility. The FOMC's official median still embeds one more increase, placing the year-end funds-rate midpoint at 4.1%. Individual projections cluster heavily at 4.125% and 4.375%, though a minority see a lower endpoint.

"What institutional investors like us are really focused on is regulatory stability," one market participant noted, speaking generally about the current environment. "The Fed in this regard has been on a very steady growth trajectory" in communicating its reaction function.

J.P. Morgan (JPM)'s recent view—one more December hike rather than October, with no expectation of a prolonged new hiking cycle—is broadly aligned with the idea of waiting for more evidence.

Market and Economic Implications

A delayed hike would matter chiefly through expectations and financing conditions. Lower perceived odds of an October increase could modestly ease upward pressure on Treasury yields and borrowing rates. It would not, by itself, make borrowing cheap: the policy rate is already in the 3.75%–4.00% range, and a pause is distinct from a rate cut.

Companies with floating-rate debt, refinancing needs, commercial-real-estate exposure, or rate-sensitive capital-spending plans benefit from reduced near-term tightening risk. However, persistent inflation can keep credit conditions restrictive even without a new hike.

A softer PCE print typically supports duration-sensitive assets such as longer-dated bonds and high-valuation equities, while it may reduce support for sectors that benefit directly from higher short-term rates. Market pricing can reverse quickly if the next jobs, wage, inflation, or energy data are stronger.

Expectations for a less-aggressive Fed can reduce upward pressure on the dollar and on global financing costs, which may provide some relief to dollar borrowers abroad and emerging markets. But the U.S. remains an important source of global financial conditions, so the ultimate effect depends on whether the softer inflation reading proves durable.

Political and Societal Context

The Fed is independent in setting monetary policy, but its choices sit in a politically sensitive environment because rate decisions directly affect consumer debt, housing affordability, business costs, employment, and the federal government's interest expense.

The FOMC's statutory dual mandate is maximum employment and price stability. Its September statement emphasized both a solid real economy and elevated inflation, framing the hike as support for a "timelier return" to 2% inflation.

Higher rates can curb price growth over time, helping households—especially those with less ability to absorb higher food, housing, and service costs. In the shorter run, they raise monthly payments for borrowers and can curb hiring or investment. Savers, by contrast, can benefit from higher yields on cash and short-term deposits.

The current policy dispute is not simply "hike versus no hike." It is whether a restrictive rate level already in place should be given time to work, versus whether the cost of allowing above-target inflation to persist warrants another pre-emptive increase. The Fed cited geopolitical uncertainty in its September statement, which can affect oil, shipping, supply chains, and inflation expectations.

Historical Context and Outlook

The immediate backdrop is a renewed inflation-fighting phase after the Fed had previously moved away from a sustained hiking cycle. In September, the Fed restarted tightening with a 25-basis-point move after nearly three years, rather than launching a large sequence of hikes. The historical parallel is the Fed's common use of pauses or "skip" meetings when inflation progress is mixed: it allows policymakers to observe the lagged effects of already-tight financial conditions without declaring victory over inflation.

Near-term watchpoints include the September and October inflation reports. Repetition of benign core-PCE readings would reinforce the case for an October pause; renewed monthly pressure, especially in core services, would revive a hike case. Labor-market data also matters: the Fed currently projects unemployment at 4.1% in 2026. A firm labor market gives it more latitude to tighten; a sharp weakening would increase the cost of doing so. Energy and geopolitical shocks can raise headline inflation even when underlying measures improve, and financial conditions—Treasury yields, credit spreads, equity prices, and the dollar—can either amplify or offset the Fed's existing restrictive stance.

If inflation cools as Goldman projects, the Fed could pause through year-end. If price progress stalls, December is the more likely venue for the next 25-basis-point hike.

The most balanced conclusion is that the inflation report has reduced the urgency of an October increase, not removed the Fed's tightening bias. The economy remains resilient and core inflation remains above target, so the October decision will hinge on whether subsequent data validate August as the start of sustained improvement rather than a one-month reprieve.

Correction: An earlier version of this article misstated the Fed's year-end funds-rate midpoint projection. It is 4.1%, not 4.0%.