Goldman Sachs has put a shape and an end date on the Federal Reserve’s tightening cycle. The bank expects the Federal Open Market Committee to hold the target range at 3.75 to 4.00 percent when it meets on Tuesday and Wednesday, following the 25 basis point hike on September 16, and then to hike once more in December, a move Goldman characterises as the second and final hike of this cycle.
The reasoning runs through financial conditions, not through a change in the inflation view. Goldman’s financial conditions index has tightened by about 30 basis points since September. That is only slightly more than the tightening typically associated with a single 25 basis point hike, and far below the degree of tightening that would correspond to the roughly four hikes markets currently price. On Goldman’s reading, the FOMC is unlikely to treat that degree of tightening as excessive, or as a reason to stop, and investors should not misread tighter conditions as a signal that the cycle is ending early.
The expected rhythm is every other meeting. Goldman cites remarks by FOMC members since September indicating no urgency to raise rates further and no need for hikes at consecutive meetings, including Governor Christopher Waller’s formulation that increases should come within a reasonable timeframe rather than back to back. Having hiked in September, the committee skips October and moves again in December. Goldman expects the October statement to adjust its language on the September hike, possibly adopting wording used by Vice Chair Philip Jefferson that further adjustments will depend on data trends, the evolving outlook and the balance of risks, and expects the press conference to add little, because the every-other-meeting plan commands broad support and the bar for deviating from it this year is high.
The call sharpens what Wednesday is actually about. Yesterday’s edition recorded prediction markets pricing a hold at 91 to 95 percent and a December hike at roughly three in four. Goldman agrees on October and December, and then stops: under its baseline, inflation improves through 2027 as tariff, energy and AI related price pressures fade, and there is no hike in March 2027. The risk it names is the opposite one, an escalation in the Middle East that pushes oil prices higher and keeps inflation pressure alive. If the statement on Wednesday keeps December explicitly live without extending the path beyond it, Goldman’s two hike cycle, against market pricing closer to four, becomes the trade.