Wall Street firms line up behind September Fed rate hike

Finding an analyst willing to oppose a Federal Reserve rate increase this week is becoming harder by the day.

The change in Wall Street forecasts has been notable heading into the new trading week, particularly following Friday's US CPI data, rising US-Iran tensions and a continued climb in long-term bond yields.

Goldman Sachs, JP Morgan and HSBC have each shifted toward predicting a 25 basis point hike in September, having previously forecast the Fed would hold rates steady.

For some, September is no longer viewed as a single move.

HSBC now forecasts the Fed will deliver 25 bps increases in both September and December. JPMorgan has similarly pulled forward a hike it had earlier expected only in December.

Goldman Sachs is taking a slightly less aggressive stance, pencilling in a 25 bps move this week after earlier predicting no change. But the more notable element of its argument has less to do with the inflation figures and more with what markets are already pricing in.

“We think that the FOMC will be reluctant to surprise,” Goldman economist David Mericle said.

That calculation matters when markets are pricing roughly an 87% chance of a rate increase. Once expectations run that far, keeping rates unchanged delivers a much bigger policy signal than it otherwise would.

Stepping back, the rapid shift in consensus is also tied to recent market moves.

Last week's inflation figures came in firm enough to raise questions about whether the disinflation trend remains intact, while oil has climbed back above $100 and Treasury yields hover near multi-year highs.

JP Morgan economists summed up the shift as a week of rising bond yields, higher energy costs and inflation data that made a September hike “more likely than not”.

The hawkish turn is also extending further out the calendar.

Deutsche Bank already expects hikes in September and December and now adds another 25 bps move in March 2027 to its outlook.

That may be the bigger story heading into Wednesday. A September rate increase is fast becoming the consensus view. The key question for markets may be whether the Fed treats it as an insurance hike against inflation or the start of another tightening cycle.