Fed to Hike Rates One Last Time Before Pausing

Goldman Sachs is predicting that the Federal Reserve will increase interest rates one last time in 2026, at its October meeting. The investment bank believes this will be followed by a pause in rate hikes as inflation begins to decline.

The Fed's decision hinges on a sustained drop in crude oil prices, which Goldman predicts will fall to $85 per barrel by December. According to Jan Hatzius, the firm's chief economist, 'modern FOMC history offers scant precedent for bypassing meetings ahead of elections', referencing the committee's 75-basis-point increase six days prior to the 2022 midterms.

Goldman expects a steady funds rate as core PCE inflation declines more quickly than the Fed anticipates. The firm also continues to expect reductions toward its neutral rate estimate of 3.25 to 3.5 percent beginning in late 2027.