Goldman Sachs expects Fed to raise interest rates by 25 basis points

Goldman Sachs expects the Federal Reserve to raise interest rates by 25 basis points after September interest-rate meeting

Global financial giant Goldman Sachs expects the U.S. Federal Reserve to raise interest rates by 25 basis points after the Federal Open Market Committee (FOMC) meeting scheduled for September 15 - 16. JPMorgan also gave a hawkish outlook after August data showed consumer and producer prices rose more than expected, and oil prices rose again above $100 a barrel as hostilities in the Middle East escalated.

Goldman Sachs revises previous forecast

Goldman Sachs initially said it did not expect the Federal Reserve to raise interest rates after the September FOMC meeting. However, with the release of August data, the reasons for raising interest rates became stronger, and Goldman Sachs immediately revised its forecast. The banking giant is now expected to raise interest rates by 25 basis points, which will increase its target interest rate range from 3.50%-3.75% to 3.75%-4%.

According to the Federal Reserve's official calendar, the FOMC is expected to announce its decision at 2 pm EST on September 16. Interest rate hikes could put huge pressure on Bitcoin (BTC) and other risky assets. Typically, higher interest rates lead to a stronger dollar and tightening liquidity conditions.

"Goldman Sachs abandoned the view that the Federal Reserve will keep interest rates unchanged next week. The bank now expects to raise interest rates by 25 basis points at its September 15 - 16 meeting. This could put pressure on Bitcoin and other risky assets, as higher interest rates often mean tighter financial conditions and a stronger U.S. dollar."

According to a research note from Goldman Sachs, the bank made a marginal adjustment to its personal consumption expenditure (PCE) estimates, raising it to 0.26%. "[The report] does not change our view on underlying inflation," the bank said in a research note. However, given that the bank had previously given a near 90% probability of raising interest rates after the meeting, it warned that if rates remained unchanged, the market could react violently.

August inflation data complicates the situation

According to the U.S. Bureau of Labor Statistics, the U.S. consumer price index (CPI) rose 0.4% in August, while the overall inflation rate remained stable at 3.4% for 12 months. Core CPI, which excludes food and energy, rose 0.3% in August, but fell to an annualized rate of 2.4% from 2.5% to its lowest level in five years. However, the energy index climbed 16.3%, and food prices rose 2.7%. Airfare, communication services, accommodation, education and used car prices also increased, while medical and motor vehicle insurance prices fell.

Diane Swonk, chief economist at KPMG, said that despite the decline in core annual rates, the Federal Reserve is not satisfied with some service industry data. She estimates that services other than housing rose 0.5% in August and 3% over a one-year period.

"Growth is mainly concentrated in the service industry."

Swonk pointed out that overall PCE inflation may rise by 0.4% in August, while core PCE may increase by 0.3%, corresponding to annual rates of 3.8% and 3.4%, respectively.

Economists question hawkish predictions

However, some economists raised objections to Wall Street's forecasts. James Thorne, chief marketing strategist at Wellington-Altus, questioned Goldman's revised position, saying it may reflect market expectations rather than a change in the inflation outlook. "There is no material change in the inflation outlook, but the rate hike is to reassure Wall Street," Thorne said. He also emphasized that the 3.1% annual wage increase strongly refuted the idea of a wage-price spiral. He added that higher borrowing costs would not affect oil production or supply chain disruptions, and that interest rates could reduce demand, investment and purchasing power.

Meanwhile, Swonk believes there will be three rounds of interest rate hikes by early 2027 and said: "We now expect three rate hikes by early 2027."

Analysis of Bitcoin Price Trend

Bitcoin (BTC) is currently trading at approximately US$77,700 and has risen nearly 1% in the past 24 hours. However, on the weekly chart, it still fell more than 2%. After the probability of a rate hike reached 81%, the flagship cryptocurrency briefly exceeded $78,000 and traded above $79,000 before the inflation data was released.

Bitcoin was in a downward trend at the beginning of last Monday, falling to 1.55% to US$79,091. Selling pressure continued on Tuesday, with prices falling 0.82% to $78,447 before falling to an intraday low of $77,589. Buyers tried to drive a rally on Wednesday, with BTC reaching an intraday high of $79,752. However, momentum weakened after reaching this level, fell slightly and closed at US$78,283. Selling pressure intensified on Thursday, with BTC falling more than 2% to $76,536.

Buying returned on Friday, with BTC climbing to an intraday high of $79,852. However, it failed to break through the $80,000 mark and lost momentum eventually closed at $77,208, up 0.88% from Thursday. Prices rose slightly on Saturday before falling 0.60% to $76,799. In current trading, BTC is up 1.28% and trading at approximately US$77,780.

The 14th Relative Strength Index (RSI) is currently near the median of 50, in the neutral region. At the same time, the MACD indicator has turned bearish, but suggests that downward momentum is weakening. The Fear and Greed Index currently stands at 68, firmly in the "greedy" area. However, the market generally expects Bitcoin prices to fall if the Federal Reserve raises interest rates after the FOMC meeting.