Brokerages Shift Hawkish Stance as Inflation Concerns Mount

Major US brokerages are shifting their views on interest rates in response to stronger-than-expected inflation data, with Goldman Sachs, J.P. Morgan, HSBC, and Deutsche Bank now forecasting a 25-basis-point rate increase at the Federal Reserve's September 15-16 meeting.

The rise in oil prices above $100 a barrel has added to concerns about inflation, while markets are also pricing another hike in December, according to CME's FedWatch Tool. The tool indicates a roughly 90% probability of a quarter-point Fed rate hike this month, up from around 70% before the latest inflation data.

J.P. Morgan has shifted toward a more hawkish outlook following the latest inflation data and now expects the Fed to raise rates again this year. It has also increased its estimate of the long-run policy rate to 3.25%. HSBC's economists, on the other hand, are backing a September rate hike due to a lack of further progress on inflation.

Goldman Sachs continues to expect the Fed to cut rates twice in 2027 but has pushed those reductions further out. The bank sees the expected September increase as being driven more by market pricing and the Fed's reaction function than by a fundamental deterioration in inflation trends.