Goldman Sachs Adds March Rate Hike to Fed Forecast After Inflation Surprise

Goldman Sachs now expects the Federal Reserve to raise interest rates at its December meeting and again in March, pushing the fed-funds rate above what markets currently price in. The revision, made Wednesday, follows a third straight month of deteriorating inflation news and Tuesday's release of October consumer-price data showing core inflation at 3.75%.

Economist David Mericle, who leads the call, predicted an additional 25 basis-point hike in March on top of the increase he already expects when the Fed meets on December 8-9. He cited not only the CPI print but also Fed Governor Chris Waller's hawkish speech in London, delivered the same day. Waller hinted at the possibility of a larger, 50 basis-point move.

What do markets expect?

Rate traders currently assign an almost 90% probability to a 25 basis-point hike at the December meeting, according to pricing data cited in the analysis. The remaining 10% — a longshot — covers the 50 basis-point increase that Waller raised on Tuesday. Mericle expects the Fed to signal the further March tightening in its dot plot, the central bank's projected rate chart, when it is published next month.

The takeaway in plain words: Goldman sees one more hike than the market does, and it expects the Fed to say so in December.

Why does January worry the bank?

Mericle's concern is the calendar. He flagged the prospect of start-of-the-year price increases in January that would amplify cost pressures. That, he argued, would leave the Fed little choice but to make monetary policy more restrictive still.

The inflation news has now worsened for three consecutive months. Core CPI at 3.75% for October came in hotter than expected, and it was that streak — not a single data point — that drove the forecast change.

In plain words: the bank fears a New Year wave of price hikes could force the Fed's hand.

Where does Goldman see the peak?

Not all signals point up. The drop in oil prices has convinced Mericle that the "bulk of the pass-through from the energy shock to consumer prices is behind us." That qualification matters: the same economist forecasting two more hikes also argues the energy-driven component of inflation is largely exhausted.

Goldman expects inflation to subside by the end of 2027. On that basis, the bank is betting on four rate cuts on a regular basis starting in late 2027, bringing the terminal fed-funds rate down to a range of 3.25% to 3.5% — from the current 3.75% to 4%. That is a horizon of roughly two years before policy loosens, and it depends on inflation cooperating in the meantime.

The takeaway: Goldman's endgame is lower rates, but only after a higher peak.

How did bond markets react?

The yield on 2-year U.S. Treasury notes ended Tuesday at 4.75%, up 18 basis points on the day. That marked the largest selloff in Treasury yields since April 2025 — a comparison that puts Tuesday's move in perspective as the sharpest repricing in roughly six months. U.S. bond markets were closed Wednesday for Veterans Day, so the full reaction to Goldman's revised forecast has yet to be tested.

What's the so-what?

Goldman's call widens the gap between Wall Street's base case and market pricing by exactly one hike. If the March increase shows up in the Fed's dot plot next month, as Mericle expects, that gap could close quickly — and repricing risk along with it.