Goldman Sachs, JP Morgan expect September Fed hike as inflation lingers

By Rashika Singh

Sept 14 (Reuters) - Goldman ‌Sachs and J.P. ​Morgan now ​expect the U.S. Federal Reserve to raise interest rates this week after a string of stronger-than-expected inflation readings challenged hopes that price pressures would ‌continue to ease without additional policy tightening.

The Wall Street banks joined a ⁠growing number of forecasters turning more hawkish after data last week showed 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. [O/R]

In a note on Friday, Goldman Sachs abandoned its previous call for rates ​to remain unchanged and now expects a 25-basis-point increase at the U.S. Fed's September 15-16 meeting. J.P. Morgan, meanwhile, 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.

"We think ​that the FOMC will be reluctant to surprise," Goldman Sachs economist David Mericle said.

J.P. Morgan struck a similarly hawkish tone following the inflation ​reports.

"The week that saw rising bond yields and ‌energy prices and a firm enough set of inflation readings to make a rate hike at next week's FOMC meeting more likely ⁠than not," J.P. Morgan economists led by Michael Feroli said in a note.

The outlook for further Fed tightening will be in focus this week as policymakers conclude their meeting on Wednesday, while investors ⁠also watch the Bank of Japan for policy signals.

J.P. Morgan said the latest inflation data cast doubt ​on a sustained disinflation trend, leading it to forecast another Fed rate hike this year and raise its estimate of the long-run policy rate to 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, with another increase expected in December, ‌according to CME's FedWatch Tool.

In a separate note on Sunday, Goldman Sachs said it still ⁠expects two Fed rate cuts in ‌2027, though later than previously ​forecast, as it sees this week's expected hike as driven more by market pricing than inflation fundamentals.

(Reporting by Rashika Singh in Bengaluru; Editing by ‌Sherry Jacob-Phillips)

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