Goldman Sachs Pushes US Rate Hike to December as Inflation Softens; October Move Now Off the Table

The Quick Take

• Goldman Sachs shifted its forecast for the next US Federal Reserve rate hike from October to December after softer-than-expected inflation data reduced near-term tightening probability.
• The brokerage had previously expected a 25-basis-point increase in October, now projecting December as the timing for the second hike in the current Fed cycle.
• Cooling US inflation extends the timeline for monetary tightening, providing near-term relief to equity valuations and emerging market currencies sensitive to US rate differentials.

Goldman Sachs' revision of its US rate hike forecast from October to December reflects a meaningful dovish adjustment by one of Wall Street's most closely watched rate strategists. The shift follows weaker-than-expected US inflation data, which reduced market-implied probability of an October Fed move substantially. For the UAE — where the AED is pegged to the USD and UAE interest rates shadow Fed decisions — a delayed December hike rather than October provides an additional six-week window of lower borrowing costs for the region's property, banking, and corporate sectors, all of which are sensitive to local interest rate levels.

Goldman Sachs' December forecast, if correct, implies a benign Q4 for risk assets: equities can sustain higher valuations with delayed rate pressure, credit spreads remain contained, and emerging market currencies benefit from a softer near-term dollar path. UAE banks — including Emirates NBD, FAB, and Mashreq — face reduced net interest margin pressure from a later rate cycle, while UAE real estate developers benefit from lower mortgage rate trajectories. However, the December hike scenario still represents continued tightening, maintaining upward pressure on Gulf borrowing costs through early 2027.

Key forward signals include the October FOMC meeting statement and Fed Chair Powell's press conference for explicit language confirming the October skip. US PCE inflation data (the Fed's preferred measure) for September will validate or challenge Goldman's December pivot thesis. The macro variable governing this thesis is US wage growth — persistently elevated wage inflation would force the Fed's hand earlier than December, regardless of softer goods inflation data, and could reset Goldman's forecast once again.

Synthesized from 1 source.