Fed Rate Hike Looms as Inflation Data Revives Hawkish Sentiment

The Federal Reserve is likely to raise interest rates in September, according to Goldman Sachs and J.P. Morgan. The two Wall Street banks have revised their forecasts following stronger-than-expected inflation readings.

Data released last week showed that U.S. consumer and producer prices rose more than expected in August, while oil prices climbed above $100 a barrel due to renewed hostilities in the Middle East.

Goldman Sachs has abandoned its previous call for rates to remain unchanged and now expects a 25-basis-point increase at the September 15-16 meeting. J.P. Morgan forecasts quarter-point hikes in both September and December.

The latest data have revived concerns that progress toward the Fed's 2% inflation target could stall after months of moderation, according to Goldman Sachs economist David Mericle.