Goldman Sachs pushes forecast for next Fed rate hike to December

Why it matters

Goldman Sachs has pushed its call for the Fed's second rate hike from October to December, and market odds of an October move have collapsed from about 71% a week ago to roughly 38%, according to CME Group's FedWatch Tool.

Oct. 1 (Reuters) — Goldman Sachs said in a Wednesday research note that softer-than-expected August inflation had led it to move its forecast for the second rate hike from October to December. The bank added there was “a strong chance that the FOMC will ultimately conclude that additional rate hikes are unnecessary.”

The trigger was the August personal consumption expenditures (PCE) price index, which rose 3.4% year on year, below the 3.7% estimate of economists polled by Reuters. The team of Jan Hatzius, David Mericle and Alec Phillips expects fourth-quarter core PCE inflation of 3.0%, well below the FOMC participants' median forecast of 3.4%.

Context: the Federal Reserve raised rates in September — its first hike in three years and the first policy move under new chair Kevin Warsh. New York Fed President John Williams said Tuesday the central bank had time to weigh the data before deciding when to hike again.

Market attention now turns to Friday's (Oct. 2) September nonfarm payrolls report. Source: Reuters.