Goldman Sachs and J.P. Morgan now expect the US Federal Reserve to raise interest rates this week, after a spate of higher-than-expected inflation readings dashed optimism that price pressures would continue to diminish without further policy tightening.
Wall Street banks joined a growing number of forecasts in turning more bullish after data released last week indicated that US consumer and producer prices rose more than predicted in August, while oil prices soared past $100 per barrel due to ongoing tensions in the Middle East.
In a note issued Friday, Goldman Sachs abandoned its previous estimate for rates to remain steady and now anticipates a 25-basis-point increase at the Fed’s September 15-16 meeting. J.P. Morgan predicts quarter-point increases in both September and December.
The most recent numbers have raised concerns that progress toward the Fed’s 2% inflation objective may stagnate after months of deceleration. “We believe the FOMC will be hesitant to surprise,” Goldman Sachs economist David Mericle said.
J.P. Morgan economists led by Michael Feroli wrote in a note that the week saw rising bond yields and oil prices, as well as a strong set of inflation indicators, making a rate hike at next week’s FOMC meeting more likely than not.
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