Fed Rate Hike Expected This Week as Major Banks Reverse Their Forecasts

Key Takeaways

Table of Contents

Four major financial institutions—Goldman Sachs, JPMorgan, HSBC, and Deutsche Bank—have revised their predictions to include a 25-basis-point rate increase at the Federal Reserve’s upcoming September 15-16 policy meeting
Probability of a rate increase surged to approximately 88-89% following August’s unexpectedly high inflation figures
Oil prices surpassed the $100-per-barrel threshold, intensifying inflation worries
Investment strategists maintain that the ongoing bull market can withstand rate increases provided corporate earnings stay robust
Historical data shows the S&P 500 typically gains 9% during the year after an initial rate hike in a tightening cycle

Leading financial institutions have dramatically altered their Federal Reserve policy predictions before this week’s central bank gathering, with major banks including Goldman Sachs, JPMorgan, HSBC, and Deutsche Bank now anticipating a 25-basis-point rate increase.

There will be a rate hike next week, warns Goldman Sachs 🚨 🚨 pic.twitter.com/hpk38SCYEW

— Barchart (@Barchart) September 12, 2026

This dramatic pivot follows August inflation readings that exceeded expectations alongside a dramatic climb in crude oil valuations beyond $100 per barrel, fueled by heightened geopolitical tensions throughout the Middle East region.

The probability of a rate adjustment during the September 15-16 Federal Open Market Committee meeting has jumped to approximately 88-89%, a significant increase from the 67-70% range registered prior to last week’s inflation release. The central bank has maintained its current borrowing cost levels throughout this year following a quarter-point reduction at the conclusion of 2025.

Goldman Sachs’s Dramatic Pivot

This represents a dramatic about-face for Goldman Sachs. Just weeks ago, the financial institution had characterized a September rate increase as “very unlikely.” Lead economist Jan Hatzius had contended that consecutive months showing weaker employment and inflation metrics made any movement toward tightening difficult to rationalize.

During that period, CME FedWatch projections indicated September rate increase probability at approximately 30%. Goldman’s primary scenario anticipated continued inflation moderation rather than deterioration.

The institution has since released analysis characterizing the anticipated rate increase as a reaction to evolving market conditions. Goldman continues to project two Federal Reserve rate reductions during 2027, albeit on a delayed schedule compared to previous expectations.

HSBC economist Ryan Wang articulated the situation directly: “Lack of inflation progress has tipped the balance.”

JPMorgan adjusted its projection for the terminal policy rate upward to 3.25%. The bank’s economists characterized the preceding week as featuring “rising bond yields and energy prices and a firm enough set of inflation readings” sufficient to make tightening more probable than not.

Implications for Equity Markets

Notwithstanding the rate increase expectations, investment strategists across Wall Street generally anticipate the bull market will persist. Goldman Sachs strategists under Ben Snider’s leadership emphasized that corporate earnings, rather than interest rates, continue to represent the primary catalyst for equity performance.

The S&P 500’s forward price-to-earnings multiple has contracted from 22 at year’s beginning to 19, despite the benchmark index trading within 2% of its all-time peak.

Historical patterns indicate the S&P 500 typically declines approximately 2% during the quarter following an initial rate hike in a tightening sequence, though it advances 9% throughout the subsequent twelve-month period.

Morgan Stanley strategists projected that high-quality equities would likely deliver superior performance should the Fed implement the anticipated increase. They observed that cyclical and momentum-driven stocks have traditionally outperformed the broader market surrounding the inaugural hike of a tightening phase.

JPMorgan indicated that a limited hiking sequence should prove manageable for equity markets. The primary danger, according to the bank, involves inflation reaccelerating and necessitating an extended tightening campaign.

Morgan Stanley highlighted the immediate concern of an abrupt oil price surge connected to potential Strait of Hormuz closure, which could transform a measured policy recalibration into an extended hiking sequence.

The Federal Reserve’s two-day policy deliberation concludes Wednesday.

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