Another Fed hike to follow? Goldman Sachs says US Federal ‌Reserve could raise interest rates again in October

The US Federal Reserve raised its benchmark interest rate for the first time in 2023 to combat persistent inflation above its 2% target. Fed Chairman Kevin Warsh indicated an improving economy while other central banks are also increasing rates amidst global concerns.

The US Federal Reserve raised its benchmark interest rate Wednesday, making it the first such hike since 2023. The rate hike announced by Trump-appointed Fed Chairman Kevin Warsh was widely expected as a move to combat stubbornly high inflation that has remained above its 2% target for more than five years.

Warsh stated that the economy has shown signs of gathering speed since the central bank decided to keep rates unchanged in late July. Inflation has also remained stubbornly above the Fed's 2% target, and he noted there is little sign it is cooling, according to The Associated Press.

Warsh also noted that other central banks are hiking interest rates in response to global turmoil and higher gas prices.

Quick answers to key questions

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QUESTIONS

The Fed's decision was influenced by persistent inflation remaining above the 2% target for over five years and indications of a strengthening economy, necessitating action to control inflation.

Goldman Sachs believes another rate hike is likely in October as it aligns with the Fed's strategy to support a timely return to the 2% inflation target at consecutive meetings.

Higher interest rates can lead to increased borrowing costs for mortgages, car loans, and credit cards, which can financially strain households, while savers may benefit from improved returns on deposits.

Trump has publicly criticized the Fed's rate hike, arguing that interest rates should be considerably lower, at 1% or less, to foster economic growth and lower borrowing costs.

The Fed's independence is crucial for effective monetary policy; hence, it should prioritize inflation control and economic stability over political influences, even amidst pressures from figures like Trump.

US President Donald Trump has been a vocal critic of interest rate hikes and had regularly clashed with Warsh’s predecessor, Jerome Powell, during his tenure as Federal Reserve Chair over high rates.

Goldman Sachs sees another Fed rate hike

The Fed next meets in late October, and most economists expect officials will keep rates unchanged then because it is just a week before the midterm elections. However, Goldman Sachs said it expects ​the US Federal ‌Reserve to raise interest rates by ​25 basis points ​in October.

According to Reuters, Goldman Sachs said ​October was the most ‌likely time for the next move, because it was most ​natural ​to deliver hikes that the Fed ​presented as ​supporting "a timelier return" to the 2% inflation target ​at consecutive ​meetings.

Trump responds to Fed rate hike

Meanwhile, Trump has made his criticism of the Fed’s rate hike public, while backing Warsh.

“The board is very hostile. They’re very political. They’re doing the wrong thing. They’re a bunch of politicians,” Trump told reporters in North Carolina ahead of a midterm campaign rally, adding, “They’re raising rates to make Trump do as bad as they can possibly do.”

In a post on Truth Social, Trump suggested that the interest rates in the US should be 1% or less.

“Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World — BY FAR. Our Country is BOOMING with new Investment! If we stopped Trading with every country that we have a Deficit with, which is most of them, we would make, at least, 1.5 Trillion Dollars a year. The word “Deficit” is nothing more than a fancy word for LOSS. We are “carrying” almost every country in the World, and that cannot go on any longer. LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST,” Trump said.

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