Fed Delays Next Rate Hike, But Economic Pressures Persist

Goldman Sachs has recently adjusted its forecast for the next Federal Reserve (Fed) interest rate hike from October to December. This change reflects New York Fed President John Williams' assessment that a single additional increase this year may be enough, contingent on economic developments. However, Williams emphasized there is no need for urgency after September's hike, giving the Fed time to review more data before acting again. According to projections by the central bank, unemployment should fall to 4% in late 2027 and inflation will reach 3.5% this year, returning to a target of 2% in 2028. The risk posed by growing investments in artificial intelligence (AI) could add to inflationary pressures, requiring the Fed to prevent supply shocks from making higher inflation persistent. While Williams' statements were seen as more dovish, his outlook remains conditional on future data. Another factor is the political calendar, with the upcoming October meeting falling just before the U.S. midterm elections in November, which could introduce a political sensitivity to the timing of the decision. Parallel to this, markets are already adjusting part of this expectation, with the 10-year U.S. Treasury yield increasing more than 67 basis points since August and the 2-year yield around 63 basis points higher, reflecting forward-looking interest rate projections.