Goldman Sachs US Daily: A September Rate Hike
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After the latest CPI report, Goldman Sachs economists led by David Mericle changed their call for next week's September FOMC meeting from holding steady to a 25bp hike, stressing that further tightening is possible but not their base case. The pivot reflects markets rather than fundamentals: the CPI only nudged Goldman's August core PCE forecast up to 0.26%, and the bank still attributes all inflation in excess of the 2% target to fading one-off factors. Incorporating methodology revisions taking effect this month, three-month annualized core PCE through August is estimated around 2.5%, below Governor Waller's 2.8% threshold for keeping rates on hold; the economy is not overheating, inflation expectations show no immediate risk of de-anchoring, and limited hikes cannot meaningfully offset supply shocks. But Chair Warsh's hawkish Jackson Hole speech has conditioned markets to expect hikes on imperfect inflation news, and this CPI was not worrying but imperfect; the FOMC likely fears that standing pat would damage perceived Fed credibility and trigger an immediate reaction in long-end rates, while rising oil prices may sway previously wavering voters. Goldman still expects the hike, though the decision looks less clear-cut than near-90% market pricing implies, and sees follow-ups as unlikely at October's pre-midterm meeting and in December as inflation improves and tariff- and Iran war-related boosts fade.
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Exhibit 1
