Banks Flip to Hike Mode as Fed Rate Increase Chances Rise

Big banks on Wall Street are shifting their stance on interest rates, now expecting the Federal Reserve to raise them at its September meeting. The shift comes after a hotter-than-expected August inflation print, which pushed markets to price in an 87% chance of a quarter-point move.

Goldman Sachs and JPMorgan Chase, two of the largest US banks, have dropped their earlier calls for no change and now expect a quarter-point increase. Goldman Sachs argues that the Fed will be hesitant to wrong-foot markets already leaning towards a hike, while JPMorgan Chase points to higher energy prices and still-sticky inflation as reasons for its prediction.

The bigger shift is in the long-term interest rate estimate, with JPMorgan Chase lifting its forecast to 3.25%. This change could have significant implications for bond yields and how banks price loans, even if the Fed pauses later on.