Fed Hike Forecasters Jump to 87% as Inflation Data Stiffen Policy Tightening

Goldman Sachs and J.P. Morgan have joined the growing list of forecasters who now expect the US Federal Reserve to raise interest rates this week. The latest inflation data, which showed a stronger-than-expected rise in consumer and producer prices in August, has challenged hopes that price pressures would ease without additional policy tightening.

The Wall Street banks cited rising oil prices above $100 a barrel due to renewed hostilities in the Middle East as another factor contributing to their hawkish forecasts. Goldman Sachs economist David Mericle stated that the FOMC will be reluctant to surprise, while J.P. Morgan economists led by Michael Feroli noted that the week's events have made a rate hike at next week's meeting more likely than not.

J.P. Morgan is forecasting quarter-point hikes in both September and December, with its estimate of the long-run policy rate now standing at 3.25%. Markets are pricing in an 87% chance of a quarter-point Fed rate hike this month, up from about 70% before the latest inflation data.