Federal Reserve Rate Hike Becomes Near Certainty Amid Rising Inflation

The Federal Reserve's September meeting has become a virtual certainty for a rate hike. Analysts from Goldman Sachs, JPMorgan, and HSBC have all shifted their forecasts to expect a 25-basis-point increase in interest rates this week.

Last Friday's inflation report showed a higher-than-expected month-on-month core CPI, oil prices broke through $100 per barrel, and U.S. Treasury yields remain near multi-year highs. This triple threat of rising costs is driving expectations for the rate hike.

Goldman Sachs economists emphasized that the market has already priced in an approximately 87% probability of a rate hike, making it unlikely that the Fed would maintain unchanged interest rates without sending a strong policy signal.

The bigger question now is whether this hike will be viewed as an 'insurance' measure against inflation or the start of another round of tightening. If characterized as insurance, the U.S. dollar may experience a brief spike before retreating. However, if seen as the beginning of a new cycle, the greenback's strength will receive more sustained support.

Deutsche Bank has taken an even more hawkish stance, forecasting not only rate hikes in September and December but also another 25-basis-point hike in March 2027.