Goldman Sachs reverses call, now expects second Fed hike in October

By shifting its forecast from December to October, Goldman Sachs has compressed the timeline that markets must factor in for the next rate hike. This places a live meeting risk within a period many had thought the Fed would steer clear of due to the midterm elections. Should other firms adjust their schedules similarly, short-term yields and the dollar could remain buoyant through October, reinforcing the argument for an extended period of elevated rates. The change may be more qualitative than quantitative. By dropping the most dovish stance on Wall Street, Goldman reduces the spectrum of possibilities in rate markets, shifting it toward the hawkish side. That usually drags on rate-sensitive stocks and puts pressure on risky assets that had bet on a less aggressive tightening.

Goldman has abandoned its 'one and done' view, and now the bank is setting the earliest next move on the Fed's agenda among major forecasters.

Goldman's revised outlook in brief:

• Goldman Sachs now predicts a second 25bp rate rise in October, abandoning its earlier view that September's increase would be the sole move this year.
• This revision places Goldman ahead of JPMorgan and Morgan Stanley, each of which had expected the next hike in December.
• Goldman noted three factors that made Wednesday's meeting more hawkish than expected: a 16-to-2 majority in the dot plot favoring another increase in 2026, with no dissenting votes on the decision; a higher median rate trajectory out to 2029; and a neutral rate estimate revised up to 3.25% from 3.06%.
• Goldman interpreted Chair Kevin Warsh's repeated characterization of the hike as removing policy accommodation as laying the groundwork for additional tightening.
• The update reduces the disparity between Goldman and more hawkish institutions, and increases the likelihood of an active October meeting, which some had thought would be avoided because of the midterm elections.

Goldman Sachs has dropped its 'one and done' expectation for the Fed and now anticipates a second 25-basis-point hike from the FOMC in October, reversing its earlier forecast that Wednesday's rise would be the only one this year. The change stands out as one of the more significant adjustments on Wall Street after the meeting, as it places Goldman's schedule ahead of JPMorgan and Morgan Stanley, both of which had been looking at December for the next move, not October.

Goldman's economists stated that Wednesday's meeting appeared more hawkish than expected in three specific ways.

• First, 16 of 18 FOMC members forecast at least one additional increase this year in the revised dot plot, and the rate decision had no dissents.
• Second, the median fed funds rate projection remained high through 2029, and the median neutral rate estimate, which policymakers regard as neither boosting nor restraining the economy, increased to 3.25% from 3.06% in the previous forecasts.
• Third, during his press conference, Chair Kevin Warsh described the hike as removing some policy accommodation, which Goldman's analysts interpreted as an attempt to justify additional tightening rather than a one-time, precautionary action.

Combined, these three factors seem to have influenced Goldman's view more than the actual rate decision, which was already anticipated and matched the bank's pre-meeting projection. The revision aligns Goldman's short-term rate outlook more closely with the Fed's median guidance and reduces the divergence between Goldman's relatively dovish stance and the more hawkish positions held by other banks. It also increases the chance of a significant October meeting, a date some analysts had dismissed as improbable because it falls just before the November midterms. Goldman's updated forecast indicates the committee may be less concerned about that timing than previously thought.