- Goldman Sachs moved its forecast for the Federal Reserve’s next interest rate hike from October to December.
- August core PCE inflation slowed to 3.0% year on year, below the 3.3% market forecast.
- Strong US consumer spending could keep pressure on the Federal Reserve despite softer inflation data.
Goldman Sachs Delays Federal Reserve Rate Hike Forecast
Goldman Sachs has shifted its forecast for the Federal Reserve’s next interest rate hike from October to December after US inflation data came in weaker than expected. The bank said the latest figures significantly reduced the likelihood of a rate increase at the Federal Reserve’s October meeting.
The data also increased the possibility that the Federal Reserve may not need to raise interest rates again for the rest of the year. Goldman Sachs now expects the next potential rate hike to come in December, although its assessment reflects the latest inflation figures rather than a firm policy decision by the central bank.
Core PCE Inflation Falls Below Market Expectations
The core personal consumption expenditures (PCE) price index, which excludes food and energy prices and is closely monitored by the Federal Reserve, rose 3.0% year on year in August. That was below the market expectation of 3.3%.
Headline PCE inflation, which includes food and energy costs, reached 3.4%, also below the expected 3.7%. Goldman Sachs forecasts that core PCE inflation will remain around 3.0% year on year in the fourth quarter. That projection is below the 3.4% median estimate from Federal Reserve officials.
Consumer Spending Remains a Key Rate-Setting Factor
On a monthly basis, the PCE price index increased 0.3% in August, while core PCE rose by a more limited 0.2%. The softer monthly increase suggests that price pressures may be easing, strengthening the case for the Federal Reserve to take a more cautious approach to additional rate hikes.
However, US consumer demand continued to show resilience. Inflation-adjusted consumer spending rose 0.6% in August, marking its strongest monthly increase since March 2025. The strength of household spending remains an important consideration for the Federal Reserve because sustained demand can support economic activity while also contributing to renewed inflation pressure.
Why This Matters
The latest PCE figures are significant because the Federal Reserve uses the PCE price index as a key measure when assessing inflation and setting monetary policy. A weaker-than-expected reading may reduce the urgency for another increase in borrowing costs, while strong consumer spending could make it harder for policymakers to declare that inflation risks have fully subsided.
Goldman Sachs’ move from an October to a December rate-hike forecast highlights the uncertainty surrounding the Federal Reserve’s next steps. Future decisions will depend on whether inflation continues to slow and whether robust consumer demand persists through the remainder of the year.
Frequently Asked Questions
Why did Goldman Sachs delay its rate-hike forecast?
Goldman Sachs delayed its forecast from October to December after August inflation data came in below expectations, reducing the likelihood of an October Federal Reserve rate increase.
What was the August core PCE inflation rate?
Core PCE inflation rose 3.0% year on year in August, below the 3.3% market expectation.
Could the Federal Reserve avoid another rate hike this year?
Yes. Goldman Sachs said the latest data strengthened the possibility that the Federal Reserve may not need to raise interest rates again for the remainder of the year.