Goldman Sachs and JP Morgan have revised their outlooks to anticipate an interest rate increase by the US Federal Reserve this week, following stronger-than-expected inflation data. Recent reports showed that both consumer and producer prices in the United States rose more than forecasted in August, a development that has prompted a more hawkish stance among market observers. Additionally, oil prices have surpassed $100 per barrel amid ongoing hostilities in the Middle East, adding to inflationary concerns.

Goldman Sachs had previously expected the Fed to leave rates unchanged but now projects a 25-basis-point increase at the Federal Open Market Committee (FOMC) meeting scheduled for today and tomorrow. JP Morgan has signaled expectations for two quarter-point hikes, one in September and another in December. Economists from both banks cite the latest inflation data as undermining hopes for sustained easing of price pressures and progress toward the Fed’s 2% inflation target.

David Mericle, an economist at Goldman Sachs, noted that the FOMC would likely avoid surprising markets, suggesting the anticipated rate hike aligns with prevailing investor expectations. Similarly, JP Morgan economists, led by Michael Feroli, emphasized that rising bond yields and energy prices, combined with firm inflation readings, have made a rate increase at this meeting more probable.

The Federal Reserve’s policy decision will be closely watched this week alongside developments from the Bank of Japan, as investors gauge the global monetary policy climate. JP Morgan analysts highlighted that the recent data cast doubt on a continuing disinflation trend, prompting a forecast of another Fed rate hike later this year and an upward revision of the long-term policy rate estimate to 3.25%.

Market indicators reflect this shift: the CME FedWatch Tool suggests an 87% probability of a rate hike in September, up from about 70% before the latest inflation figures, with another increase expected in December.

Despite the short-term hawkish pivot, Goldman Sachs maintains its longer-term view that the Federal Reserve will execute two rate cuts in 2027, although these are expected to occur later than previously anticipated. The bank attributes the near-term rate hike largely to market pricing dynamics rather than a fundamental shift in underlying inflation trends.