Goldman adds another rate hike to Fed outlook after hot inflation data (updated)
UPDATE 3-Goldman adds another rate hike to Fed outlook after hot inflation data Adds comments from BofA and Standard Chartered
By Kanishka Ajmera
Nov 11 (Reuters) - Goldman Sachs expects a 25-basis-point Federal Reserve rate increase in March after hotter-than-expected October inflation data prompted it to reverse its forecast that the hiking cycle would end in December.
Goldman's call follows a similar move by Deutsche Bank, although the latter expects an additional quarter-point increase in January on top of hikes in December and March.
Inflation data on Tuesday marked a third consecutive month of upside surprises, and cemented expectations a 25-basis-point hike on December 9, which markets had fully priced in, per CME FedWatch Tool.
The Fed raised its benchmark interest rate to a 3.75%-4.00% range in September, marking its first hike in three years.
Inflation has been rising on the back of higher oil prices amid the Iran war, US President Donald Trump's import tariffs, resilient consumer demand and strong AI-related investment.
In a note on Tuesday, Goldman's chief US economist, David Mericle, said a third rate hike is more likely in March than in January, as inflation is expected to ease through year-end before renewed price pressures at the start of the year push inflation higher again.
The brokerage expects rate cuts to begin in December 2027, three months later than previously forecast, followed by additional cuts in March, June and September 2028.
CASE FOR A BIGGER FED RATE HIKEHawkish comments from Fed's policymakers earlier this week also underscored expectations for further policy tightening. Fed Governor Christopher Waller has suggested a 25-basis-point hike next month and a larger increase if price pressures accelerate.
Brokerages BofA Global Research, Citi and Standard Chartered said that Waller's remarks and recent inflation readings have opened the door to a 50-basis-point hike in December, but also noted that there's insufficient data to firmly support that outcome.
"There is a stronger case for a 50bps rate hike in December than we expected, but it is not yet definitive," said economists led by Steve Englander at Standard Chartered.
The odds of a 50-basis-point increase in December stand at 13.5% after the inflation report, up from effectively zero before the data, according to the CME FedWatch Tool.
"We continue to expect a 25bp rate hike from the Fed in December, but risks of a larger 50bp hike have increased after comments from Governor Waller and if recent market volatility and tightening financial conditions stabilize in coming weeks," Citi said in a note.
(Reporting by Kanishka Ajmera and Joel Jose in Bengaluru; Editing by Janane Venkatraman, Harikrishnan Nair and Shinjini Ganguli)