Goldman Sachs Now Sees 25bp Fed Hike After CPI Stays Flat

Goldman Sachs just flipped its call to expect the Fed to lift rates by 25 basis points on September 16. The change came right after August CPI printed with annual inflation still at 3.4 percent, keeping the door open for one more tightening step before the policy meeting.

Why This CPI Print Shifted the Odds

The data didn't surprise on the headline, yet it was enough to move futures pricing sharply. Traders had been debating whether the Fed would pause or keep inching higher. Once the 3.4 percent year-over-year figure landed, the odds of a quarter-point move jumped to 87 percent in overnight trading.

That leaves the dollar sitting a touch firmer against most majors this morning. EUR/USD has eased back below 1.1050 while USD/JPY is holding above 145.50. Anyone watching the front end of the curve saw two-year yields push higher as the market adjusted its bets.

Policy Path and What Comes Next

The Fed has already delivered two hikes this year after pausing earlier. Inflation has cooled from last year's peaks but remains above target, which is why Goldman revised its forecast. We've seen similar late-cycle adjustments before, notably in 2018 when the central bank kept adding to rates even as growth showed signs of softening.

Traders are now focused on how much further the dollar can run if the hike lands. Commodity currencies such as AUD and CAD have felt the pressure, with AUD/USD dipping below 0.6600 overnight.

Why does this shift matter for anyone sitting at their screens right now? It changes the risk skew on rate-sensitive pairs and could keep short-term volatility elevated into the meeting.

How Positions Are Adjusting

Short-term flows show desks trimming long euro and sterling exposure while adding to dollar longs in crosses. Treasury futures also reflect the repricing, with the September contract giving back some of last week's gains. It's not a dramatic move yet, but the tone has turned more cautious.

Two Views on the Move

One side argues the data supports one final hike because core services inflation hasn't rolled over enough. The other side points to softening labor market signals and says the Fed risks overtightening. Both camps are watching the same September meeting for clues on whether officials see this as the end of the cycle.

Goldman's call lines up with the higher probability priced by futures, but markets can still shift if incoming data softens before the 16th. There's no guarantee this trend continues once the decision is behind us.