Update 2 - After inflation data exceeded expectations, Goldman Sachs added another rate hike to its Fed policy outlook.

Added Deutsche Bank's forecast in paragraphs 6 and 7

Reuters, November 11 - Goldman Sachs on Tuesday predicted the Federal Reserve will raise interest rates by 25 basis points in March, after October inflation data (link) came in higher than expected, prompting the bank to revise its previous forecast that the rate hike cycle would end in December.

The US bank's view aligns with Deutsche Bank, which expects (link) another 25 basis point hike in January, in addition to rate increases in December and March.

The inflation data released on Tuesday exceeded market expectations for the third consecutive month. According to Chicago Mercantile Exchange (CME) FedWatch data, the market (link) widely anticipates a 25 basis point rate hike on December 9.

Inflation is continuing to rise (link), driven by factors such as higher oil prices stemming from the Iran war, import tariffs imposed by US President Donald Trump, strong consumer demand, and booming artificial intelligence investment.

The rising cost of living has intensified voters’ dissatisfaction, leading to a heavy defeat for the Trump-led Republican Party in last week's midterm elections.

Goldman Sachs stated that a third rate hike is more likely to take place in March than in January, as the bank expects inflation to ease before the end of the year and then, against the backdrop of persistently high costs, price pressures in the "early part of the year" will push inflation higher again.

“By the March meeting, or even the January meeting, the energy shock may have largely subsided. But we expect that recent inflation data will prompt most Federal Open Market Committee (FOMC) members to signal a third rate hike in the December dot plot,” said Goldman Sachs’ chief US economist David Mericle.

The broker now expects rate cuts to begin in December 2027, three months later than previously forecast, followed by further cuts in March, June, and September 2028.

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